Economics 1

Question 1

Measures the rate of increase in the overall price level in the economy…

Answer 1

Inflation Rate

Question 2

Interest rate charged by banks to their best credit risk borrowers…

Answer 2

Prime Rate

Question 3

Set by the Fed; interest rate established for short-term loans to member banks…

Answer 3

Discount Rate

Question 4

Measures the level of economic output without taking into account the overall price level or inflation rate…

Answer 4

Nominal Rate

Question 5

Price of all goods & services produced by labor & property supplied by the nation’s residents…

Answer 5

Gross National Product (GNP)

Question 6

Price of all goods & services produced by a domestic economy for a year at current market prices…

Answer 6

Nominal Gross Domestic Product (GDP)

Question 7

Price of all goods & services produced by the economy @ price level adjusted prices…
(price level adjustment eliminates the effect of inflation on the measure)

Answer 7

Real GDP

Question 8

Price of all goods & services produced by a domestic economy for a year at current market prices minus depreciation…

Answer 8

Net Domestic Product (NDP)

Question 9

The expenditure (input) approach to GDP includes…

Answer 9

all expenditures to purchase final goods & services by households, businesses, and the gov.
Includes personal consumption expenditures, gross private investment in capital goods (machinery), and the country’s net exports.

Net interest in NOT included in the expenditure approach.

Question 10

The Fed would most likely purchase gov securities if the goal was to…

Answer 10

stimulate the economy.
Purchasing these securities increases money supply & expands the economy. Selling securities would take money out of the economy.

Question 11

Approaches to calculate GDP:

Answer 11

Expenditures approach and Income approach

Question 12

What factors have a direct relationship effect on the supply of a product…

Answer 12

Government subsidies; Expectations of price increase; Number of producers.

The prices of other goods have an inverse relationship with the supply of a product.

Question 13

Regarding the aggregate supply curve & aggregate demand curve in the short run…

Answer 13

1) Quantity demanded is inversely related to the price level. (as prices rise, QD falls)
2) Quantity supplied is upward sloping. (QS is directly related to price level. If prices rise, sellers want to sell more)

Question 14

When the Fed has an expansionary monetary policy…

Answer 14

interest rates fall - increases in desired investment and consumption cause an increase in aggregate demand - which increases the real GDP.

Question 15

As aggregate demand increases…

Answer 15

GDP increases, employment increases, and unemployment decreases.

Question 16

Inflation…

Answer 16

hurts those on a fixed income
helps those with a fixed obligation
increases the price level

Question 17

Conducting competitor analysis:

Answer 17

gathering information about competitors’ strategies, capabilities, and objectives and then using that info to understand & predict competitor behavior.

Question 18

Which non-monetary assets’ values increase with inflation?

Answer 18

precious metals (gold & silver)

Question 19

The income (output) approach to GDP includes:

Answer 19

all income earned in the production of final goods & services, such as wages, interest, rents, dividends, etc.

Net exports are NOT included in the income approach.

Question 20

Evidence of a potential, or even actual, recession:

Answer 20

falling GDP, decrease in aggregate demand or aggregate supply, unemployment rises