Unit 11

Question 1

What is economics?

Answer 1

the study of supply and demand

Question 2

What is Gross domestic product (GDP)?

Answer 2

A nation’s annual economic output—all the goods and services produced within the nation

Question 3

What does GDP include?

Answer 3

all activity that occurs within the confines of the nation’s boundaries, even if the activity is generated by a foreign entity

Question 4

When people want to buy an item that is in short supply, the item’s price _________

Answer 4

rises

Question 5

In GDP, what does a negative and/or positive figure indicate.

Answer 5

A positive figure indicates that the economy is growing. A negative figure indicates that the economy is contracting.

Question 6

Explain a Consumer Price Index.

Answer 6

The most prominent measure of general price changes

Question 7

What does the United States GDP include?

Answer 7

personal consumption, government spending, gross private investment, foreign investment, and net exports

Question 8

What does the Consumer Price Index measure?

Answer 8

Measures the rate of increase or decrease in a broad range of consumer prices, such as food, housing, transportation, medical care, clothing, electricity, entertainment, and services.

Question 9

Comparing the economic output (GDP) of one period with that of another, how is this done?

Answer 9

analysts use the CPI to account for changes in the costs of goods to adjust for inflation (or deflation). This way the GDP figures reflect actual growth

Question 10

What is real GDP?

Answer 10

It is a constant dollar (inflation adjusted) measurement. The term constant dollar measurement is sometime used for CPI.

Question 11

How often is CPI measure?

Answer 11

Each month

Question 12

What is deflation?

Answer 12

Is a general decline in prices

Question 13

When does a deflation occur?

Answer 13

Occurs during severe recessions when unemployment is on the rise

Question 14

What is hyperinflation?

Answer 14

the pace of inflation is extremely high and accelerating. This severely erodes the purchasing power of a currency.

Question 15

What is stagflation?

Answer 15

is the term used to describe the unusual combination of inflation (a rise in prices) and high unemployment

Question 16

What is stagnation?

Answer 16

refers to prolonged periods of slow or little economic growth, accompanied by high unemployment.

Question 17

In __________, investors often move cash away from the nation and the currency experiencing it, worsening the devaluation of the currency

Answer 17

hyperinflation

Question 18

When does stagflation?

Answer 18

This generally occurs when the economy isn’t growing and there is a lack of consumer demand and business activity, but prices for goods are still rising.

Question 19

Describe inflation

Answer 19

is a general increase in prices

Question 20

An economic environment with little or no economic growth, but where inflation is present, is best described as 
A. deflation. 
B. depression. 
C. Stagflation. 
D. Stagnation.

Answer 20

C

Question 21

Which of the following would be a leading economic indicator? 
A. S&P 500 Index 
B. Industrial production 
C. Duration of unemployment 
D. Gross domestic product (GDP)

Answer 21

A

Question 22

A measure of the change in economic activity that occurs over a given time frame within the boundaries of a nation is that nation's 
A. gross domestic product. 
B. gross national product. 
C. Consumer Price Index. 
D. industrial production.

Answer 22

A

Question 23

What is coincident economic indicators ?

Answer 23

change direction along with the economy as a -whole

Question 24

When are coincident economic indicators published?

Answer 24

after the time period has passed, they are good confirmation tools of the leading indicators

Question 25

Explain the effect of mild inflation and high inflation.

Answer 25

Mild inflation can encourage economic growth because gradually increasing prices tend to stimulate business investments. High inflation reduces a dollar's buying power, which hurts the economy.

Question 26

What are some coincident economic indicators?

Answer 26

■ Number of hours worked (as a proxy for personal income) ■ Employment levels (as measured by the rate of unemployment) ■ Nonagricultural employment ■ Personal income ■ Industrial production ■ Manufacturing and trade sales ■ GDP

Question 27

What are some lagging economic indicators?

Answer 27

■ Corporate profits ■ Average duration of unemployment ■ Labor cost per unit of output (manufacturing) ■ Ratio of inventories to sales ■ Commercial and industrial loans outstanding ■ Ratio of consumer installment credit to personal income

Question 28

What is lagging economic indicators?

Answer 28

Are those indicators that change after the economy has begun a new trend but serve as confirmation of the new trend

Question 29

What is the purpose of lagging economic indicators?

Answer 29

Help analysts differentiate long-term trends from short-term reversals that occur in any trend

Question 30

What is the Gross National Product?

Answer 30

GNP is very similar to GDP but is based not on the activity that occurs within the country but on the activity of the citizens and entities of the nation, wherever it may occur.

Question 31

What is the major difference between GDP and GNP?

Answer 31

GNP sees significantly less use (outside of economists) than GDP.

Question 32

How often is the GNP published?

Answer 32

On a quarterly basis

Question 33

Who publishes the GNP in the United States of America?

Answer 33

Commerce Department

Question 34

Explain what the change in direction means in leading economic indictors.

Answer 34

The change of direction may lead the economy by a very long time frame (months) to very short (weeks), but they have proven to be reliable.

Question 35

If the Dearborn Motor Corporation, based in Michigan, builds a new auto plant in Germany, that would add to _______

Answer 35

GNP (the company is a U.S. company)

Question 36

What is leading economic indicators?

Answer 36

Those indicators that tend to change direction ahead of the overall economy.

Question 37

Foreign Motor Corporation, based in Japan, builds a new auto assembly line in Texas. This economic activity would add to ____(GDP/GNP) 1___________, but it would not add to ___(GDP/GNP) 2_____.

Answer 37

1. GDP (it was built in the United States) | 2. GNP because the company is not a U.S. entity

Question 38

What are some leading economic indicators?

Answer 38

■ Money supply (M2) ■ Building permits (housing starts) ■ Average weekly initial claims for state unemployment compensation ■ Average work week in manufacturing ■ New orders for consumer goods ■ Machine tool orders ■ Changes in inventories of durable goods ■ Changes in sensitive materials prices ■ Stock prices ■ Changes in business and consumer borrowing