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ECON 202 > exam #2 > Flashcards

exam #2 Flashcards

MSU econ 202

1
Q

Gross Domestic Product

A

the market value of all FINAL goods and services produced within a country over a time period

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2
Q

“the market value”

A

how much people pay for a good

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3
Q

“of all”

A

everything produced and sold legally

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4
Q

“final”

A

will not be sold again (end user)

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5
Q

intermediate good

A

good used in the production of final good

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6
Q

T or F
the sale of used goods does not count as part of GDP

A

TRUE

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7
Q

“within a country”

A

goods imported does not count as GDP (ex: USA only)

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8
Q

which of the following counts as GDP?A. Lions paid for playing a game in London
B. spend hours teaching your son to read
C. Hire my grandma to baby-sit my kids
D. sell flowers to a flower market

A

C

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9
Q

what is the equation for GDP?

A

GDP = C + I + G + NX
c: consumption/purchases
I: gross investment - goods are accumulated but not consumed
g: government purchases
nx: exports (ex - Im)

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10
Q

gross investment

A

goods that are accumulated but not consumed during that time

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11
Q

inventory

A

goods that were produced but not sold

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12
Q

what is nominal GDP

A

does not account for price change
given in current prices, without adjustment for inflation.

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13
Q

how does real GDP effect prices?

A

holds prices constant

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14
Q

what is the equation for per capita GDP?

A

GDP / population

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15
Q

two ways economic growth can happen

A

population and productivity increase

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16
Q

productivity occurs when there is improvement in:

A

physical, human, natural resources, technological knowledge

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17
Q

what is the growth rate equation

A

GDP2 - GDP1 / GDP1

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18
Q

what is the equation for productivity

A

output / time worked

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19
Q

the labor forces does not include people who:

A
  • under 16
  • in prison
  • out of work for less than a week
  • sought out jobs for 4 weeks
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20
Q

frictional unemployment

A

people searching/waiting for jobs

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21
Q

structural unemployment

A

skills workers offer do not match the skills needed by firms in the economy

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22
Q

cyclical unemployment

A

unemployment from flutucations in the business cycle

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23
Q

Lara was fired from her job but has a job interview next week.
A. discouraged worker
B. frictionally unemployed
C. structurally unemployed
D. cyclically unemployed worker

A

B

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24
Q

what is the equation for unemployment rate

A

unemployed / labor force x100
expressed as a %

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25
Q

inflation

A

increase in prices

to calculate inflation, use CPI first

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26
Q

what is Consumer price index (CPI)

A

an indicator that measures the average prices of goods + services purchased

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27
Q

calculating CPI

hint: not an equation

A
  • identify goods and services
  • collect prices of the goods over time
  • calculate market value
28
Q

CPI equation

A

prices of basket as a Tt time / prices of basket in base time x 100

29
Q

calculating inflation using CPI

A

II t = CPI1 - CPI t -1 / CPI t -1
t- current year
t -1 = previous year

30
Q

aggregate expenditures equation

A

C + I + G + NX = GDP

31
Q

what does “short run” mean?

A

prices are fixed/take time to adjust

32
Q

what is disposable income

A

income - taxes

33
Q

what does marginal mean

A

the use of the next dollar

34
Q

what is propensity?

A

inclination or tendency to do something

35
Q

Marginal propensity to consume (MPC)

A

fraction of each additional dollar of income that is spent on consumption
MPC = change in C / change in Y
y - income c - consumption

36
Q

Marginal propensity to save (MPS)

A

fraction of each additional dollar of income that is saved
MPS = change in savings / change in income
s - savings y - income

37
Q

equilibrium

A
  • net savings and net borrowing to be zero
  • consumption = equilibrium
38
Q

expenditures multiplier

A

how much output will increase for any initial change in income

39
Q

tax multiplier

A

how much output will eventually change for an initial change in taxes

40
Q

what is tax multiplier related to?

A

directly related to marginal propensity bc as income decreases some consumption and savings will be lost

41
Q

MulitplierT

A

-MPC / 1 - MPC

42
Q

market demand

A

the quantity of one good that consumers want to buy at various prices

43
Q

quantity of a product =

A

real GDP

44
Q

price of a product =

A

price level (CPI)

45
Q

determinants of aggregate supply

A

productivity, resource prices, social institution’s

46
Q

what is long run aggregate supply (LRAS)

A

potential of the economy at full employment

47
Q

is LRAS vertical or horizontal

A

vertical

48
Q

what happens during a recession?

A

unemployment increases and GDP decreases

49
Q

T or F
inflation and unemployment are inversely related

A

TRUE

50
Q

what’s money?

A

medium of exchange

51
Q

unit of action

A

easily compare the value of two goods

52
Q

store of value

A

spend money after you earn it
(gold being used as money)

53
Q

liquidity

A

turning asset into cash

54
Q

m1

A

very easy to spend (cash, checks)

55
Q

m2

A

takes more time to access

56
Q

the federal reserve

A

the central bank of the US

57
Q

what does the fed do

A
  • manage money supply
  • regulate banks
58
Q

reserves

A

money at a bank has on hand (as opposed to money it has loaned out)

59
Q

assets

A

what you have

60
Q

liabilities

A

what you owe

61
Q

money multiplier

A

the amount of money the bank generates with each dollar

62
Q

money multiplier calculation

A

1 / reserve ratio

63
Q

equity

A

assets - liabilities

64
Q

leverage

A

borrowing money to finance business operations

65
Q

leverage ratio

A

assets : owners equity
A / E

ECON 202 (2 decks)

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