Unit 2

Question 1

Per Capita GDP

Answer 1

Takes a nation’s population and divides it into the GDP

Question 2

Do non-market transactions (underground economy) count in GDP?

Answer 2

NO; it is estimated that 5% to 10% could be added to the US GDP if these markets counted

Question 3

Three sections of Per capita GDP

Answer 3

1. High Income- US, Japan, Germany
2. Middle Income- China, South Africa, Brazil
3. Low Income- Haiti, Afghanistan, Sudan

Question 4

Should median or mean be used to see the average of a nations GDP

Answer 4

Median because the mean can be skewed by billionaire companies and people

Question 5

Non-Market transactions are…

Answer 5

illegal activities and legal activities not reported to the government

Question 6

Law of increasing opportunity cost

Answer 6

As production moves towards the extreme ( either axis) at some point, the additional opportunity cost increase

Question 7

Deflation

Answer 7

A decrease in the average price level

Question 8

Unemployment

Answer 8

Anyone 16 years old or older who is actively seeking employment and does not have a job

Question 9

Business Cycle

Answer 9

The changes in business activity over time

Question 10

Who makes up the Non-Labor force

Answer 10

disabled, stay-at-home parents, retirees, and students

Question 11

Frictional unemployment

Answer 11

Fired/ Quit

Question 12

Structural Unemployment

Answer 12

Structure of the economy changes causing a mismatch between job skills and available jobs

Question 13

Cyclical Unemployment

Answer 13

Due toa recession/ sales decrease

Question 14

Seasonal Unemployment

Answer 14

Due to weather and season changes

Question 15

Induced unemployment

Answer 15

Due to government law/regulations

Question 16

Law of increasing opportunity cost

Answer 16

As production moves towards the extremes(either axis) at some point, the additional opportunity cost increases

Question 17

Unemployment rate for the US

Answer 17

3.7%

Question 18

Unemployment rate for Illinois

Answer 18

4.8%

Question 19

Natural rate of unemployment

Answer 19

4%-6%
unemployment consist only frictional and structural unemployment

Question 20

2 monthly methods to measure unemployment

Answer 20

1. Household survey
2. Non-farm payroll survey

Question 21

2 Adjustments to the household survey number

Answer 21

1. Discouraged workers
2. part time workers who want full time

Question 22

What statements about the CPI and PCE are correct?

Answer 22

The CPI makes substitutions every year and the PCE makes substitutions four times a year

Question 23

What factors will cause AD(Aggregate demand) to shift

Answer 23

Shift with
1. consumption
2. investments
3. gov’t spending
4. Exports

shift against
1. imports
so imports increase AD decreases

Question 24

The SRAS and LRAS curves show which perspective

Answer 24

SRAS uses current production choices
LRAS is the ideal production level investment

Question 25

demand-pull inflation

Answer 25

a. AD in economy increases b. The increasing AD causes shortage c. The shortage in those markers lead to price rise d. If people/buisnesses respond to those price increase by raising prices then prices increase throughout the economy

Question 26

Cosh-Push Inflation

Answer 26

a. key resource cost rise b.SRAS in economy decreases c. The decreasing SRAS causes shortage d. The shortage in those markets lead to price increase in those markets e. If people businesses respond to those price increases by raising their prices then prices throughout the economy increase

Question 27

Why is demand pull inflation better than cost push inflation

Answer 27

With Demand Pull GDP increases with the shift of AD right. Meaning that even though inflation is rising GDP is also increasing. If GDP is increasing it can be assumed that unemployment is decreasing But with cost push GDP decreases and if GDP is decreasing then it can be assumed unemployment is increasing,

Question 28

Five parts of the Business Cycle

Answer 28

1. Peak 2. Recession 3. Trough 4. Recovery 5. Expansion

Question 29

Specialiation

Answer 29

occurs when a nation produces what it has the greatest comparative advantage in

Question 30

Comparative advantage

Answer 30

An advantage a nation has when it can produce a good at a lower opportunity cost

Question 31

Terms of Trade

Answer 31

The rate at which nations exchange/ trade goods

Question 32

how do people loose from trade?

Answer 32

imports replace the work they do. Those with higher education or training adjust better than those with a high school education or less in the US

Question 33

What factors cause an increase in income inequality?

Answer 33

1. technology 2. education 3. tax policy 4. trade

Question 34

Inflation

Answer 34

a rise in the average price level

Question 35

Deflation

Answer 35

A decline in the average price level

Question 36

Hyper inflation

Answer 36

An unpredictable fast upward movement in the price levels

Question 37

Rule of 70

Answer 37

divide 70 by the inflation rate and it will tell you how many years it will take for prices to double

Question 38

highest grossing movie of all time?

Answer 38

Gone with the Wind

Question 39

Ways to measure inflation

Answer 39

CPI- consumer price index and PCE- personal consumption expenditure index

Question 40

Cost of Unanticipated inflation

Answer 40

1. decline in economic efficiency 2. shifts in investment to protect against inflation that would not occur otherwise 3. shift of wealth from poorer group sto wealthier groups as the wealthier can afford the time and money to catch up

Question 41

How do borrowers benefit from inflation ?

Answer 41

If a borrower borrows 1000 to produce pens and pens at the time are $2 but then increase to $4 the borrower can make a quicker profit to pay off the loan

Question 42

Winners of inflation

Answer 42

Borrowers Adjustable incomes Speculators Wealthy

Question 43

Losers of inflation

Answer 43

Lenders Fixed income Basic savers Poorer individuals