Yes

Question 1

GDP

Answer 1

The total monetary value of all goods and services produced within a country’s borders in a specific period of tine, usually a year.

Question 2

Components of GDP

Answer 2

Consumption (C): the purchase of clothing by households
Investment (I): company buys a new machine
Government Spending (G): government builds a new highway
Net Exports (NX): country exports more than it imports resulting in a positive net balance

Question 3

Nominal vs. Real GDP

Answer 3

Nominal GDP is a measure of economic output that uses current prices, while Real GDP adjusts for inflation.

Question 4

GDP per capita

Answer 4

GDP per capita is a measure of a country’s economic output per person, calculated by dividing the country’s GDP by its total population.

Question 5

Inflation rate

Answer 5

The rate at which the average price level increases over time.

Inflation rate = [(Price index in year 2 - Price index in year 1)/(Price index in year 1)] X 100

Question 6

National Income and Products (NIPA)

Answer 6

Used to:
Measure the nation’s economic performance
Compare a nation’s income and output to that of other nations
Track the economy’s condition throughout the business cycle

Question 7

Circular flow diagram

Answer 7

Learn it!

Question 8

Business Cycle

Answer 8

Learn it!

Question 9

Recession

Answer 9

Periods of economic downturns when output and employment are falling

Question 10

Depression

Answer 10

A very deep and prolonged downturn

Question 11

Expansions (aka recoveries)

Answer 11

Periods of economic upturns when output and employment are rising

Question 12

Business-cycle peak

Answer 12

The point at which the economy turns from expansion to recession

Question 13

Business-cycle trough

Answer 13

The point at which the economy turns from recession to expansion

Question 14

Self-regulating economy

Answer 14

(Pre-1930 conventional wisdom) Problems such as unemployment are resolved without government intervention through the working of the invisible hand

Question 15

Keynesian economics

Answer 15

(Post 1930s conventional wisdom) Economic slumps are caused by inadequate spending, and they can be mitigated by government intervention

Question 16

Included and not included in calculating GDP

Answer 16

Included:
- domestically produced final goods and services (including capital goods)
- new construction of structures
- changes to inventories

Not included:
- intermediate goods and services
- used goods
- financial assets like stock and bonds
- foreign-produced goods and services

Question 17

Gross National Product

Answer 17

GNP is defined as the total factor income earned by residents of a country. it EXCLUDES factor income earned by foreigners and INCLUDES factor income earned by residents aboard.

Question 18

GDP per worker

Answer 18

a measure of income per head of the working population

Question 19

Market basket of goods and services

Answer 19

Refers to a collection of items that are commonly purchased by consumers

Question 20

price index

Answer 20

The ratio of the current cost of the market basket to the cost in a base year, multiplied by 100

Price index in a give year = [(Cost of market basket in a given year)/(Cost of market basket in base year)]X100

Question 21

Consumer Price Index

Answer 21

CPI is the most common measure of the aggregate price level and typically used to measure inflation. It measures the cost of the market basket of a typical family

Question 22

Producer price Index

Answer 22

PPI measures the average change over time in the prices domestic producers receive for their output

Question 23

GDP deflator

Answer 23

Measure the price level by calculating the ratio of nominal GDP to real GDP

GDP Deflator = (Nominal GDP/Real GDP) X 100

Question 24

Inflation vs deflation

Answer 24

Inflation is a rising aggregate price level. Deflation is a falling aggregate price level.

Question 25

Real income

Answer 25

Gives a measure of the amount of goods and services that we can consume with a given nominal income.

Question 26

Business cycle SR vis LR

Answer 26

In the SR, movements in inflation are closely related to the business cycle. In the LR, the overall level of prices is mainly determined by changes in the money supply.

Question 27

Disinflation

Answer 27

The process of bringing the inflation rate down

Question 28

Nominal vs real interest rates

Answer 28

Nominal: the interest rate expressed in dollar terms Real: nominal interest rate minus the rate of inflation Formula: Real interest rate = Nominal interest rate - Inflation rate

Question 29

Fisher effect (interest rates)

Answer 29

An increase in expected future inflation drives up the nominal interest rate, leaving the expected real interest rate unchanged

Question 30

Planned Vs Actual Spending

Answer 30

Planned: saving or investment is the intended actions of households and firms Actual: saving or investment is the realised outcome resulting from actions of households and firms.

Question 31

Full employment

Answer 31

When those people who want to work at the going rate are able to find a job

Question 32

SR equilibrium of the economy

Answer 32

Where aggregate (planned) expenditure [E = C + I + G + NX] crosses the actual spending [45 degree line] curve. Where Actual = Planned

Question 33

Deflationary gap

Answer 33

Look at diagram!!!!! The difference between full employment output and expenditure when expenditure is less than full employment output

Question 34

Inflation gap

Answer 34

Look at diagram!!!!!! The difference between full employment out and actual expenditure when actual expenditure is greater than full employment

Question 35

Multiplier effect

Answer 35

Refers to the additional shifts in aggregate demand that result when expansionary fiscal policy increases income and thereby increases consumer spending. Government purchases are said to have a multiplier effect on AD. - a euro of government purchases can generate more than a euro of AD Formula: Multiplier = 1/(1 - MPC) Multiplier - 1/MPS

Question 36

Accelerator principle

Answer 36

Relates the rate of change of AD to the rate of change in investment.

Question 37

MPC

Answer 37

Marginal Propensity to Consumer is the fraction of extra income that a household consumes rather than saves

Question 38

MPS

Answer 38

Marginal Propensity to Save is the fraction of extra income that a household saves rather than consumes

Question 39

Autonomous expenditure

Answer 39

Spending that is not dependent on income/output

Question 40

Money Supply

Answer 40

The total value of financial assets in the economy that are considered money

Question 41

Function of money

Answer 41

Medium of exchange; - an asset that individuals acquire for the purpose of trading rather than for their own consumption Store of value: - enables people to save the money they earn today and use it to buy the goods and services they want tomorrow Unit of account: - money provides a yardstick for measuring and comparing the values of a wide variety of goods and services

Question 42

Monetary aggregate

Answer 42

M1: included only the most liquid forms of money M2: includes near-money financial assets that can’t be directly used as a medium of exchange but can readily be converted into cash or checkable bank deposits

Question 43

Bank reserves

Answer 43

The currency that banks hold in their vaults plus their deposits at the Central Bank

Question 44

How banks create money

Answer 44

- purpose of financial markets and institutions: act as a bridge between lenders and borrowers - accepting deposits and making loans -> able to create money - when money is deposited, part of it goes in the bank’s vault

Question 45

Excess reserves

Answer 45

A bank’s reserves over and above its required reserves. ASSUME bank’s don’t want this

Question 46

Money Supply curve

Answer 46

LOOK AT THE DIAGRAM!!! Represents the relationship between the quantity of money supplied in the economy and the interest rate. - vertical curve as it is fixed by the central bank

Question 47

Money demand

Answer 47

Downward slowing

Question 48

Effect of increase in money supply

Answer 48

- shift Ms curve to the right - lead to a lower value of Mooney as more money is circulating in the economy - lead to an increase in Price level (inflation)