Midterm 1

Question 1

Gross domestic product (GDP)

Answer 1

The sum of the market value of all final goods and services produced within a country in a given period of time

Question 2

Gross national product (GNP)

Answer 2

The sum of all final goods and services produced by the citizens of a country within a given period of time

Question 3

Real GDP

Answer 3

Calculated with goods and services held at constant prices

Question 4

Nominal GDP

Answer 4

Calculated with goods and services at current prices

Question 5

GDP deflator

Answer 5

Measures change in price

Nominal GDP/real GDP x 100

Question 6

Consumer price index (CPI)

Answer 6

Basket price in desired year
————————————— x 100
Basket price in base year

Question 7

Purchasing power parity (PPP)

Answer 7

Purchase power should theoretically be the same everywhere when stated in common currency

Question 8

PPP adjusted GDP

Answer 8

Nominal dollars
————————————
1 - price level adjustment

Question 9

Cost of living adjustment

Answer 9

Real year B =

Nominal year A x
CPI year B
——————
CPI year A

Question 10

Real value year B

Answer 10

= real value year A x

CPI year A
—————
CPI year B

Question 11

Real GDP per capital growth rate =

Answer 11

Nominal GDP growth rate - inflation rate - population growth rate

Question 12

Years until income doubles

Answer 12

Rule of 70

       70 ——————— Real growth rate

Question 13

GDP year A =

Answer 13

GDP year B x

(1 + growth rate)^A-B

Question 14

Unemployment rate =

Answer 14

of unemployed
———————— x 100
Labour force

Question 15

Frictional unemployment

Answer 15

Unemployment caused by workers who are changing their location, job, or career.

Question 16

Structural unemployment

Answer 16

Unemployment caused by a mismatch between the skills workers can offer and the skills that are in demand

Question 17

Classical / real-wage unemployment

Answer 17

The effect of wages remaining persistently above the market clearing level

Question 18

Short run demand side shock

Answer 18

Price and output move the same direction

Question 19

Long run demand side shock

Answer 19

Output stays the same, price increases or decreases

Question 20

Short run and long run supply shock

Answer 20

Output and price move in opposite directions

Question 21

Marginal propensity to consume (MPC)

Answer 21

The amount by which consumption increases when after tax income increases by 1$

Question 22

Government spending multiplier definition

Answer 22

The amount by which GDP increase when government spending dung increases by 1$

Question 23

Government spending multiplier formula =

Answer 23

1
————
1 - MPC

Question 24

Taxation multiplier definition

Answer 24

The amount GDP decreases when taxes increase by 1$

Question 25

Taxation multiplier formula =

Answer 25

-MPC ———— 1 - MPC

Question 26

Transfer payments

Answer 26

Payments from government accounts to individuals for programs that do not involve the purchase of goods or services I.e. welfare

Question 27

Crowding out effect

Answer 27

Theory that rising public spending drives down private spending Due to the increased interest rates from the government borrowing to spend