Topic 1: Macro Data and Performance Metrics

Question 1

GDP (formal definition)

Answer 1

market value of final goods and services newly produced within a nation during a fixed period of time

Question 2

Value Added approach (GDP)

Answer 2

revenue less costs of non-labor inputs

Question 3

Income approach (GDP)

Answer 3

Sum the returns to all productive factors (returns = wages and salaries to labor and interest, dividends, rents and royalties paid to investors)

Question 4

Expenditure approach (GDP)

Answer 4

sum spending on all final goods and services (final goods and services are not used to product other goods or services)

Question 5

Which GDP approach is used in practice?

Answer 5

Expenditure

Question 6

GDP equation

Answer 6

Y = C + I + G + NX

Question 7

GDP equation - C

Answer 7

consumptions

Question 8

GDP equation - I

Answer 8

investment

Question 9

GDP equation - G

Answer 9

governments consumption and gross investment (does not include transfer payments)

Question 10

GDP equation - NX

Answer 10

net exports of goods and services

Question 11

types of consumption expenditure

Answer 11

durable goods, non durable goods, services

Question 12

types of investment expenditure

Answer 12

residential, business structures, business equipment and software, change in private inventories

Question 13

types of government expenditure

Answer 13

national defense, non defense, state and local

Question 14

difference between GDP and GNP

Answer 14

GNP is output produced by domestically owned factors of production and GDP is output produced within a nation

Question 15

NFP

Answer 15

net factor payments from abroad, payments to domestically owned factors located abroad minus payments to foreign factors located domestically.

Question 16

GDP as related to GNP

Answer 16

GDP = GNP - NFP

Question 17

real GDP

Answer 17

adjust for price changes to reflect only quantity changes

Question 18

GDP Deflator

Answer 18

price index that applies fixed base year prices to value current year quantities consumed - nominal/real

Question 19

CPI

Answer 19

weighted average of price changes where the weights reflect consumer purchasing patterns

Question 20

how is production a circular process?

Answer 20

households provide factors of production to firms through labor and savings, production earns the funds needed to pay off the factors of production (revenue is what is above and beyond cogs, therefore must include wages, salaries, dividends, profits, etc in income approach for GDP)

Question 21

what household factor(s) is included in I in the GDP equation?

Answer 21

residential construction, only new homes because “used goods” don’t count

Question 22

consumption smoothing

Answer 22

changes in consumption do not fluctuate in line with GDP. When income is low, consumption stays about the same and less is saved, leading to more volatile fluctuations in investment.

Question 23

how are private inventories calculated into GDP?

Answer 23

firm produces in Q1 and doesn’t sell - gets sold into private inventory. in Q2 someone buys it so it is part of C and needs to be deducted from private inventory

Question 24

how to denote nominal GDP

Answer 24

YP(p is average price level for all goods and services included in GDP)

Question 25

two ways GDP can go up

Answer 25

Y goes up (good), P goes up (bad - inflation) -- if P goes up and Y stays constant, country is not better off

Question 26

CPI-u

Answer 26

CPI-u(urban consumer), weighted average of price changes where the weights reflect consumer purchasing patterns

Question 27

what is in GDP deflator that isn't in CPI-u

Answer 27

GDP deflator includes everything that is in GDP while CPI-u is just a basket of goods that represent general consumption

Question 28

problems with CPI

Answer 28

substitution bias - something in basket skyrockets in price, consumers will find a substitute, therefore actually buying patters may not match - leads to overstatement of cost of living AND introduction of new goods example- a computer sold 10 year ago does less than now but prices about the same - cost of living in reference to this has gone down

Question 29

example: 1981 CPI-u=90.5 and min wage = 3.35 AND 2012 CPI-u=228.61, what is real value of min wage now?

Answer 29

8.42

Question 30

name 3 price indexes

Answer 30

GDP deflator, PCE and CPI-u

Question 31

inflation rate (equation)

Answer 31

(P_t+1 - P_t)/P_t

Question 32

disinflation

Answer 32

declining inflation rate

Question 33

deflation

Answer 33

declining price level (negative inflation rate)

Question 34

Feds prefer which price index and why?

Answer 34

PCE because it avoids substitution bias, coverage of more items and weights given to items

Question 35

labor force

Answer 35

unemployed + employed

Question 36

unemployment rate

Answer 36

unemployed/labor force

Question 37

participation rate

Answer 37

labor force/adult population

Question 38

employment ratio

Answer 38

employed/adult population

Question 39

civilian labor force

Answer 39

\>16 yrs old, employed or searching

Question 40

adult population does not include

Answer 40

military or institutionalized (schools, prison, etc)

Question 41

recession

Answer 41

2 consecutive quarters of declining GDP

Question 42

PCE doesn't include

Answer 42

agriculture and energy, etc. things with volatile prices

Question 43

PPP

Answer 43

Purchasing Power Parity - adjustment to evaluate other countries GDP using Am prices, corrects for differences in cost of living

Question 44

Gini coefficient

Answer 44

measures inequality 0\<100, 0 perfect equality and 100 perfect inequality

Question 45

Okuns Law

Answer 45

predicted unemployment Δu = -.5(%change in realgdp - 3) u =civilian unemployment rate

Question 46

when does unemployment peak?

Answer 46

recessions

Question 47

underemployment

Answer 47

involuntary part time

Question 48

marginally attached

Answer 48

haven't sought work in the last 4 weeks, but have in the last year ("discouraged workers")

Question 49

long term unemployment

Answer 49

6mo or longer

Question 50

interest rate

Answer 50

rate of return promised by borrower to lender

Question 51

nominal interest rate

Answer 51

rate at which nominal value of an asset increases over time

Question 52

real interest rate

Answer 52

rate at which the real value of an asset increases over time

Question 53

real vs. nominal interest rates

Answer 53

real = i - inflation

Question 54

ex ante

Answer 54

expected real interest rate (never negative)

Question 55

ex post

Answer 55

realized real interest rates (could be negative)

Question 56

household wealth

Answer 56

household assets-liabilities

Question 57

national wealth

Answer 57

sum of all households', firms' and governments' wealth within a nation

Question 58

wealth determined by

Answer 58

savings by individuals, businesses and government