form

Question 1

GDP Formula - expenditure approach

Answer 1

C + I + G + (X-M)
C = Consumer spending
I = Investment
G = Government spending
X - M = Net exports

Question 2

GDP Deflator

Answer 2

(Nominal GDP/Real GDP) * 100

Question 3

Real GDP

Answer 3

(Nominal GDP/GDP Deflator)*100

Question 4

CPI (consumer price index) formula

Answer 4

(cost of market basket in a current year/cost in base year) * 100

Question 5

Inflation rate formula

Answer 5

((CPI new - CPI old)/(CPI old))*100

Question 6

Unemployment rate

Answer 6

(Unemployed/workforce) *100

Question 7

Labor force participation rate (LFPR)

Answer 7

(labor force/population 16+) * 100

Question 8

Money multiplier

Answer 8

1/reserve requirement

Question 9

Balance of payments equation

Answer 9

Current amount + capital/financial account = 0

Question 10

Spending multiplier

Answer 10

1/(1-MPC)

Question 11

Scarcity:

Answer 11

Limited wants, limited resources

Question 12

Opportunity cost

Answer 12

is the value of the next best alternative you give up when making a decision

Question 13

Comparative advantage

Answer 13

when one producer can make a good at a lower opportunity cost than another. This concept is the foundation for beneficial trade.

Question 14

What do terms of trade represent

Answer 14

The rate at which one good is exchanged for another.

Question 15

When do both countries benefit (terms of trade)

Answer 15

Both countries benefit when the agreed terms of trade lie between their opportunity costs.

Question 16

What does GDP measure

Answer 16

the total dollar value of all final goods and services produced within a country’s borders in a given year.

Question 17

Describe real GDP

Answer 17

adjusts for inflation, giving a more accurate picture of economic growth over time

Question 18

Describe nominal GDP

Answer 18

uses current prices and does not account for inflation, so it can overstate growth if prices are rising

Question 19

What items are excluded from GDP

Answer 19

Used items, unpaid work (like household labor), black market activity, and intermediate goods (to avoid double-counting).

Question 20

How does frictional unemployment happen

Answer 20

happens when people are temporarily between jobs or just entering the labor force.

Question 21

What is structural unemployment

Answer 21

occurs when workers’ skills no longer match the needs of employers due to technological change or other shifts in the economy.

Question 22

Describe cyclical unemployment

Answer 22

is caused by downturns in the business cycle — it rises during recessions.

Question 23

Describe the Natural Rate of Unemployment (NRU)

Answer 23

includes only frictional and structural unemployment; it’s the unemployment rate at full employment.

Question 24

What does the Consumer Price Index (CPI) do

Answer 24

tracks changes in the cost of a fixed basket of consumer goods over time — it’s used to measure inflation.

Question 25

Who does unexpected inflation harm and benefit

Answer 25

benefits borrowers (who repay loans with less valuable money) and hurts lenders and people on fixed incomes.

Question 26

T or F: Real wages adjust for inflation

Answer 26

True; if inflation rises faster than nominal wages, real income falls.

Question 27

What does Aggregate Demand (AD) represent

Answer 27

represents total spending in the economy and is influenced by changes in consumer spending (C), investment (I), government spending (G), and net exports (X – M).

Question 28

Describe Aggregate Supply (AS)

Answer 28

shows the total quantity of goods and services producers are willing to supply at different price levels. It shifts when input prices, productivity, or regulations change.

Question 29

Which way does the short-run aggregate supply curve (SRAS) slope and why?

Answer 29

slopes upward because wages and some other input prices are sticky in the short run.

Question 30

Which way does the long-run aggregate supply curve (LRAS) go and why

Answer 30

is vertical at full employment, indicating the economy’s maximum sustainable output.

Question 31

When does a recessionary gap happen

Answer 31

exists when actual output is below full employment output; this requires expansionary fiscal or monetary policy to correct.

Question 32

When does an inflationary gap occur

Answer 32

when output exceeds full employment, often leading to inflation — contractionary policy can bring it back down.

Question 33

Describe expansionary fiscal policy

Answer 33

involves increasing government spending or cutting taxes to stimulate economic growth and close a recessionary gap.

Question 34

Describe contractionary fiscal policy

Answer 34

involves cutting government spending or raising taxes to slow down inflation in an overheating economy.

Question 35

What does "crowding out" mean

Answer 35

occurs when government borrowing increases interest rates, which discourages private investment.

Question 36

What are the 3 functions of money

Answer 36

It is a medium of exchange, a unit of account, and a store of value.

Question 37

How does the Federal Reserve (the Fed) control and regulate money supply (3)

Answer 37

1. Open Market Operations (buying and selling government bonds) 2. Discount rate (the interest rate the Fed charges banks) 3. The reserve requirement (minimum reserves banks must hold)

Question 38

When the Fed buys bonds, it ____ money into the economy;

Answer 38

injects; expansionary

Question 39

When the Fed sells bonds, it _____ money from the economy

Answer 39

removes; contractionary

Question 40

Which way does the money demand curve slope and why

Answer 40

Slopes downward — lower interest rates increase demand for money.

Question 41

Which way does the money supply curve slope and why

Answer 41

Is vertical because it is controlled by the Fed and doesn’t change with interest rates.