Midterm 1: Chapter 8

Question 1

What Info does macroeconomic analysis provide

Answer 1

understanding of current economic conditions and predict future conditions
gives gov. help in determining US econ. policy

Question 2

Micro vs Macro

Answer 2

study how households and firms interact (micro)

study of economy as a whole; inflation, unemployment and growth are main topics (macro)

Question 3

Business Cycle and different periods

Answer 3

Alternating periods of expansion and recession
expansion - total production and employment increase
recession - production and employment decrease

Question 4

Economic Growth

Answer 4

ability of economy to produce increasing quantities of goods and services

Question 5

Inflation Rate

Answer 5

percentage increase of price level from one year to the next

Question 6

What is GDP

Answer 6

Gross Domestic Product - market value of all final goods and services produced in a country during a period of time
only final goods, their market value ($), and used goods don’t count either, and no transfer payment

Question 7

What is GDP said to be equal to?

Answer 7

Total Income

Question 8

Components of GDP

Answer 8

Consumption, Investment, Gov. Spending, Net Exports

Question 9

What is a trend among high-income countries

Answer 9

moving away from goods production and shifting to production of services

Question 10

Largest component of investment?

Answer 10

Business Fixed Investment

Question 11

Who spends more on purchases - local/state gov or federal gov.

Answer 11

local/state gov spends more

Question 12

What is the Value added way of calculating GPD

Answer 12

the additional market value a firm adds to a product, equal to price firm sold good minus price firm bought good

Question 13

What are the Shortcomings of GDP

Answer 13

doesn’t estimate values of goods/services that are not bought in marketplace, one example is Household production, which is a good one makes for personal use
Underground Economy - illegal goods/services (its about 10% of our economy 1.7 tril)

Question 14

Shortcoming of GDP (per capita) for measuring well being

Answer 14

1. value of leisure not included in GDP
2. Not adjusted for pollution or negative effects of production
3. Not adjusted for crime and social problems
4. Doesn’t measure the exact distribution (the 1%)

Question 15

Nominal vs Real GDP

Answer 15

nominal is summing the current value for goods/services

Real GDP is measured by using a year as a base year and calculate GDP while taking inflation into account

Question 16

What is chain-weighting

Answer 16

comparing prices to previous year, and eventually creating a chain of price comparisons

Question 17

What is the Price level

Answer 17

measure of average prices of various goods and services in an economy

Question 18

GDP deflator

Answer 18

measure of price level; calculated by dividing nom GDP by real GDP and multiplying by 100

Question 19

What is Gross National Product

Answer 19

Value of final goods and services produced by RESIDENTS of USA even if they’re produced OUTSIDE of the country

Question 20

National Income

Answer 20

When you subtract the amount of depreciation from GDP (GDP - consumption of fixed capital)

Question 21

Personal Income

Answer 21

income received by households - (measured by looking at how much corporations retain) also transfer payments are included or interest on gov. bonds

Question 22

Disposable Income

Answer 22

equal to personal income minus tax payments