Download ECON 104 Final Exam Review: GDP, Inflation, and Economic Policy and more Exams Economics in PDF only on Docsity!
ECON 104 BILLE GOFFE FINAL EXAM QUESTIONS REVIEWED AND
REVISED WITH CORRECT ANSWERS
"Real GDP per capita is an imperfect measure of well being because.... - CORRECT ANSWER
- It does not account for income inequality
- RGDP per capita does not adjust for pollution
- RGDP per capita does not account for leisure time"
"Labor productivity is expressed as... - CORRECT ANSWER Y/L"
"Core CPI is best used to... - CORRECT ANSWER Understand if a sudden change in inflation
is due to volatile items" "What would happen to real gdp per capita if labor productivity fell, but the fraction of the
population working increased? - CORRECT ANSWER There is not enough information to
determine if it will rise, fall, or stay the same Y/pop= L/pop x Y/L"
"What is an example of a final good? - CORRECT ANSWER A delivery truck owned by UPS
all capital goods are final goods"
"What would happen to the per worker production function if human capital rose? -
CORRECT ANSWER The curve shifts up
*Increase in HC is an increase in "technology""
"Which of the following people is marginally attached to the labor force? Give an example -
CORRECT ANSWER A mom who cannot work because her young kids have virtual school
She is not unemployed due to an economic reason"
"What is an example of a capital good? - CORRECT ANSWER A stethoscope at a doctors
office" "Which of the following is a price index? A. GDP deflator B. Real GDP C. Nominal GDP
D. All of the above - CORRECT ANSWER A. GDP Deflator
GDP deflator and CPI index are the only 2 price indexes" "Which of the following is an example of monetary policy?
A. Fed purchasing debt securities B. Making decisions to fulfill the dual mandate C. The treasury selling bonds
D. Increasing the Fed funds rate - CORRECT ANSWER C. The treasury selling bonds"
"Business Cycle: - CORRECT ANSWER Alternating economic expansion and recession"
"What is expansion? - CORRECT ANSWER Total production and total employment
increasing"
"What is deflation? - CORRECT ANSWER Total production and total employment
decreasing"
"Economic Growth: - CORRECT ANSWER an increase in the amount of goods and services
an economy is able to produce"
"Employment levels: - CORRECT ANSWER Affected by the business cycle in the short run"
"Inflation rate: - CORRECT ANSWER The percentage of increase in price levels from year to
year"
"What affects inflation rate? - CORRECT ANSWER The business cycle"
"What is consumption? - CORRECT ANSWER Total purchases made by households"
"What does consumption include? - CORRECT ANSWER Durable goods, nondurable goods,
and services"
"Does consumption include spending on new houses? - CORRECT ANSWER NO"
"What does investment include? - CORRECT ANSWER Purchases of capital goods, additions
to inventory, residential investments"
"What does government purchases include? - CORRECT ANSWER Spending on goods and
services by local, state, and federal governments"
"What are examples of government purchases? - CORRECT ANSWER Teacher salaries, road
work"
"Headline CPI: - CORRECT ANSWER Another term used to refer to regular CPI, which DOES
include food and energy prices"
"Deflating Method Formula: - CORRECT ANSWER Real price= 100/ CPI for current year x
Nominal Price"
"nominal interest rate: - CORRECT ANSWER the stated interest rate on a loan"
"real interest rate: - CORRECT ANSWER the interest rate corrected for the effects of
inflation on purchasing power"
"Real Interest Rate= - CORRECT ANSWER nominal interest rate - inflation rate"
"When inflation is higher than expected... - CORRECT ANSWER Bad for lenders, good for
borrowers"
"Problems with anticipated inflation: - CORRECT ANSWER 1. redistribution of income
- paper money
- menu costs"
"Problems with deflation: - CORRECT ANSWER 1. Waiting for prices to keep falling
- Bad for borrowers"
"The FED has a goal to maintain... - CORRECT ANSWER 2% inflation"
"Fiscal Policy: - CORRECT ANSWER Controlled by the president and congress"
"US Treasury: - CORRECT ANSWER Executive department that manages fiscal policy"
"What does the treasury control? - CORRECT ANSWER Fed expenditures and taxes"
"Federal taxes do not affect... - CORRECT ANSWER government expenditures"
"Bond: - CORRECT ANSWER sold by the government or a large business; offers fixed future
payments to the buyer (investor)"
"M1= - CORRECT ANSWER cash + checking accounts"
"M2= - CORRECT ANSWER M1 + savings accounts"
"monetary policy: - CORRECT ANSWER actions controlled by the fed to manage the money
supply and interest rates"
"Feds dual mandate: - CORRECT ANSWER To promote effectively the goals of 1)maximum
employment, 2)stable prices, and moderate long-term interest rates"
"Notation for Economic growth model: - CORRECT ANSWER Y= real gdp
L = number of workers Y/L = real gdp per worker, aka labor productivity pop = the population of a country Y/pop = real Gdp per capita L/pop = proportion of the population in the labor force"
"Economic growth model formula: - CORRECT ANSWER Y/pop = L/pop x Y/L"
"Categories of adults without jobs who are not considered "unemployed" include: - CORRECT
ANSWER retirees, homemakers, full time students, prisoners etc"
"Discouraged workers: - CORRECT ANSWER people who are not actively looking for work
because they have given up on finding a job"
"Marginally attached workers: - CORRECT ANSWER people who have actively looked for
work in the past 12 months but NOT in the past four weeks due to discouragement or personal reasons"
"Labor force = - CORRECT ANSWER employed + unemployed"
"Unemployment rate (U-3): - CORRECT ANSWER unemployed/labor force x 100"
"Underemployed: - CORRECT ANSWER people with part time jobs are considered to be
employed, even if they would prefer a full time job"
"Labor force participation rate: - CORRECT ANSWER the percentage of working age (16+)
U.S population who are a part of the labor force"
"Labor force participation rate = - CORRECT ANSWER labor force/working age population
x 100"
"Shift: - CORRECT ANSWER Shifting the entire AD curve to the left or right
caused by a change in any other variable other than the price level"
"Monetary policy: - CORRECT ANSWER the FED takes action to manage interest rates"
"Lower interest rates: - CORRECT ANSWER lower cost of borrowing for households and
firms shifts AD to the right"
"Higher interest rates: - CORRECT ANSWER higher cost of borrowing for households and
firms shifts AD to the left"
"Fiscal policy: - CORRECT ANSWER changes in federal taxes and and government
purchases"
"Government purchases: - CORRECT ANSWER A component of GDP
increase = AD right decrease= AD left"
"Personal income taxes: - CORRECT ANSWER reduce the income a household has available
for consumption increase = AD left decrease= AD right"
"Business taxes: - CORRECT ANSWER reduce the amount of profit a firm earns, which
reduces their investment spending increase = AD left decrease= AD right"
"Transfer payments: - CORRECT ANSWER payments from the government to households
increase = AD right decrease= AD left"
"Wealth: - CORRECT ANSWER if households have more wealth, they have more money
available for consumption increase = AD right decrease= AD left"
"Population: - CORRECT ANSWER If there are more people in a country, consumption will
increase increase = AD right decrease= AD left"
"Number of firms: - CORRECT ANSWER If there are more firms in a country, investment
will increase increase = AD right decrease= AD left"
"Foreign income: - CORRECT ANSWER measures the change in income earned in a country
relative to that of the U.S"
"Exchange rate: - CORRECT ANSWER The value of the U.S dollar compared to the value of
foreign currencies"
"Increase in exchange rate: - CORRECT ANSWER The purchasing power of the U.S dollar
increases relative to other currency"
"Decrease in exchange rate: - CORRECT ANSWER The purchasing power of the U.S dollar
decreases relative to other currency"
"Price levels are not changing: - CORRECT ANSWER Net Exports are changing at every
possible price level because of the relative purchasing power to other currency"
"Short run aggregate supply (SRAS) curve: - CORRECT ANSWER shows the upward sloping
relationship between price level and quantity of real GDP supplied"
"Contracts: - CORRECT ANSWER make some prices and wages "sticky" because they
cannot change until the contract expires"
"Labor Contracts: - CORRECT ANSWER Firms often have contracts with employees that
specify the amount the firm will pay in wages"
*recession: Real GDP decreases *inflation: price level increases"
"Stagnation: - CORRECT ANSWER the combination of inflation and recession"
"Asset: - CORRECT ANSWER a resource owned or controlled by a firm or household
example: savings or checkings account"
"Liability: - CORRECT ANSWER an obligation to pay
example: mortgage on a house"
"Financial Asset: - CORRECT ANSWER legal agreements to exchange future payments"
"Security: - CORRECT ANSWER A financial asset that can be sold"
"Interest rate= - CORRECT ANSWER (face value - initial price) / initial price"
Nominal GDP - CORRECT ANSWER the value of final goods and services evaluated at
current-year prices"
"How to calculate nominal GDP - CORRECT ANSWER C + I + G +NX"
"Real GDP - CORRECT ANSWER The value of final goods and services evaluated at base-
year prices"
"How to calculate real GDP - CORRECT ANSWER P*Q for every good in GDP and add them
all together BASE YEAR 2014 - 100M visits at $50 each 2015 - 103M visits at $ 10M cars at $20,000 each 11M cars at $20,500 each real GDP for 2015: (103M * $50 + 11M * 20,000) 2015Q(1) * 2014P(1) + 2015Q(2) * 2014 P(2)"
"Monetary Policy - CORRECT ANSWER federal reserve's dual mandate (which focuses on
max employment, stable prices, and moderate long-term interest rates)"
"What will result from the Fed increasing the federal rate? - CORRECT ANSWER Costs for
banks will increase and loan rates for consumers and firms will increase. This leads to slower growth."
"Fiscal Policy - CORRECT ANSWER Controlled by the president and congress. It is the
government budget."
"GDP Deflator - CORRECT ANSWER uses nominal and real GDP to measure the price level
(not in dollars)"
"Price level - CORRECT ANSWER The average price of all goods and services in an
economy"
"How to calculate GDP deflator - CORRECT ANSWER (Nominal/Real)*100"
"CPI - CORRECT ANSWER used to correct nominal prices and wages over time for the
impact of inflation using market basket prices"
"How to calculate CPI - CORRECT ANSWER (market base price in current year/ market
basket price in base year)*100"
"Limitations of GDP - CORRECT ANSWER 1. Doesn't account for change in quality.
- Doesn't account for underground economy.
- Doesn't account for 'bads' of economy
- Doesn't account for non-market production"
"Limitations of CPI - CORRECT ANSWER Substitution bias, increase in quality bias, new
product bias, outlet bias."
"Core Inflation - CORRECT ANSWER ignores food/energy, as they can be more volatile"
"Headline inflation - CORRECT ANSWER takes food and energy in to account when
calculating"
"Real prices - CORRECT ANSWER what would have been paid for the same good or service
in the base year based on inflation"
"Real wages - CORRECT ANSWER wages based on the base year"
"Inflation rate (Calculation) - CORRECT ANSWER (CPI this year - CPI last year)/ CPI last
year"
"Inflation rate - CORRECT ANSWER the percentage increase in the price level from one
year to the next"
"intermediate good or service - CORRECT ANSWER a good or service that is an input into
another good or service, such as a tire on a truck"
"Investment (I) - CORRECT ANSWER spending by firms on new factories, office buildings
machinery, and additions to inventories, plus spending by households and firms on new houses"
"Macroeconomics - CORRECT ANSWER the study the economy as a whole including topics
such as inflation, unemployment, and economic growth"
"Microeconomics - CORRECT ANSWER the study of how households and firms make
choices, how they interact in markets, and how the government attempts to influence their choices"
"Net Exports - CORRECT ANSWER Exports-Imports"
"Recession - CORRECT ANSWER the period of a business cycle during which total
production and total employment are decreasing"
"Transfer payments - CORRECT ANSWER payments by the government to households for
which the government does not receive a new good or service in return"
"Underground Economy - CORRECT ANSWER buying and selling of goods and services that
concealed from the government to avoid taxes or regulations or because the goods and services are illegal"
"value added - CORRECT ANSWER the market value a firm adds to a product"
"Current CPI value - CORRECT ANSWER 237.8"
"Why economic growth isn't zero sum - CORRECT ANSWER The economy would not grow
if it was zero sum because someone would always be at a loss which isn't true"
"Connection between health and economic growth - CORRECT ANSWER technological
advances help to grow the economy and because of these advances medicine has been updated keeping the population healthier than before"
"How long run economic growth has dramatically changed life and how novel the last two
centuries have been - CORRECT ANSWER as wages increased so did GDP per capita. this
meant people could spend more of their money"
"Calculate the growth rate - CORRECT ANSWER (current year/first year)^(1/n) - 1"
"Rule of 70 - CORRECT ANSWER approximation for number of years it will take for the
economy to double in size - growth rate/70*100"
"Why small differences in growth rates matter dramatically over long periods of time -
CORRECT ANSWER small annual growth rates have big impacts over many years"
"per-worker production function - CORRECT ANSWER key inputs are K/L and technology
(x-axis) that increases Y/L (y-axis)"
"Per-worker production function equation - CORRECT ANSWER Y/L = A(K/L).3"
"Impact of the capital to labor ratio and technology on economic growth - CORRECT
ANSWER More human capital, better capital, better organization of production"
"The fundamental role of markets - CORRECT ANSWER people and firms freely buying and
selling. markets set the wage of just about everyone at wages far above the minimum"
"Rule of law - CORRECT ANSWER this provides peace, limits on government power,
rewards for innovation, property rights, commercial law, and government promotion of markets"
"Government - CORRECT ANSWER correct market failures and externalities"
"how rising productivity can lead to falling employment in a given industry yet is essential for
long-run growth - CORRECT ANSWER fewer farmers can be more productive, and
therefore, not as many are needed. This means the people who would have been farmers can now contribute to other parts of the economy"
"Future economic growth in the U.S. - CORRECT ANSWER 1. Slowing capital
- Falling labor force participation
- Rising inequality
- Innovation slowdown"
"Cyclical unemployment - CORRECT ANSWER unemployment cause by a business cycle
recession"
"United States growth rate - CORRECT ANSWER 2%"
"Unemployment rate Calculation - CORRECT ANSWER (number of unemployed/labor
force)*100"
"labor force participation rate calculation - CORRECT ANSWER (labor force/working age
population)*100"
"Underemployment - CORRECT ANSWER are working part time but wish to be working
full time"
"marginally attached workers - CORRECT ANSWER those who've looked for a job in the
past 12 months"
"underemployment rate (U-6) - CORRECT ANSWER much higher than unemployment
rate, about a 7.5% difference in the height of the most recent recession"
"Unemployed more than 27 weeks - CORRECT ANSWER highest its been was right after the
great recession and is lower now at about 30%"
"Okun's Law - CORRECT ANSWER Δ%Y=3-2 ΔU
y is real GDP and U is unemployment rate"
"Causes of recessions - CORRECT ANSWER 1. Monetary policy
- Oil Shock
- Fiscal policy
- Financial policy"
"Monetary policy and recessions - CORRECT ANSWER federal reserve's dual mandate
which focuses on max employment, stable prices, and moderate long term interest rates"
"Oil Shock - CORRECT ANSWER "
"Fiscal policy and recessions - CORRECT ANSWER federal spending and taxes"
"Financial policy and recessions - CORRECT ANSWER "
"market - CORRECT ANSWER a group of buyers and sellers of a good or service and the
institution or arrangement by which they came together to trade"
"product market - CORRECT ANSWER a market for goods and services"
"factor market - CORRECT ANSWER a market for the factors of production, such as labor,
capital, natural resources, and entrepreneurial ability"
"free market - CORRECT ANSWER a market with few government restrictions on how a
good or service can be produced or sold or on how a factor of production can be employed"
"property rights - CORRECT ANSWER the rights individuals or firms have to the exclusive
use of their property including the right to buy or sell it"
"long run economic growth - CORRECT ANSWER the process by which rising productivity
increases the average standard of living"
"labor productivity - CORRECT ANSWER the quantity of goods and services that can be
produced by one worker or by one hour of work"
"capital - CORRECT ANSWER manufactured goods that are used to produce other goods
and services"
"industrial revolution - CORRECT ANSWER the application of mechanical power to the
production of goods, beginning in England around 1750"
"economic growth model - CORRECT ANSWER a model that explains growth rates in real
GDP per capita over the long run"
"technological change - CORRECT ANSWER a change in the quantity of output a firm can
produce using a given quantity of inputs"
"human capital - CORRECT ANSWER the accumulated knowledge and skills that workers
acquire from education and training or from their life experiences"
"new growth theory - CORRECT ANSWER a model of long-run economic growth that
emphasizes that technological change is influenced by economic incentives and so is determined by the working of the market system"
"Patent - CORRECT ANSWER the exclusive rights to produce a product for a period of 20
years from the date the patent is applied for"
"Influences of the aggregate demand curve - CORRECT ANSWER Shift Right Shift left
Movement
"stagflation - CORRECT ANSWER a combination of inflation and recession, usually
resulting from a supply shocks"
"Securities - CORRECT ANSWER financial asset that can be bought or sold"
"stocks - CORRECT ANSWER a 'share' in ownership of a company"
"bonds - CORRECT ANSWER a security sold by large businesses or governments.
Consumers buy these and the seller is entitled to pay back the owner with interest at a given date."
"Why should college students know about financing retirement and how it is done -
CORRECT ANSWER 1. save early and often
- invest in stocks while you're young
- save about $300 a month"
"What is money? - CORRECT ANSWER M1and M2"
"M1 - CORRECT ANSWER currency (all paper and coins), value of all checking account
deposits in banks, the value of traveler's checks"
"M2 - CORRECT ANSWER M2 - includes M1 as well as savings account deposits, small
denomination time deposits, balances in money market deposit accounts in banks, and noninstitutional money market fund shares"
"why is money more efficient than bartering - CORRECT ANSWER barter can only use
double conscious wants - both parties want to trade for what the other one has. anyone can use money, meaning both parties will always want it"
"how and why the fed can alter interest rates - CORRECT ANSWER to make interest rates
to go down the Fed buys bonds because then bonds are worth more"
"how the Fed can reduce the rate of inflation - CORRECT ANSWER higher rates make it
more expensive to borrow, there is less spending, slower growth, and less inflation"
"Assets equation - CORRECT ANSWER liabilities + net worth"
"Reserve Ratio - CORRECT ANSWER the amount of money that must be set aside (usually a
percent)"
"Reserves - CORRECT ANSWER a bank deposit at the Fed"
"Checking deposit Calculation - CORRECT ANSWER (1/RR)*reserves"
"Interest Rate calculation - CORRECT ANSWER (face value - PTBill)(/PTBill) face value
minus P T-Bill divided by P T-Bill"
"assets - CORRECT ANSWER something you own"
"liabilities - CORRECT ANSWER something you owe"
"Deficit - CORRECT ANSWER amount of money borrowed per year"
"Debt - CORRECT ANSWER total amount of money owed"
“What is an example of creative destruction? - CORRECT ANSWER iPhone replacing old
flip phones" "Changes in federal funds rate influences interest rates on car loans, mortgages and student
loans (T or F) - CORRECT ANSWER True"
"In order to grow quickly, China concentrated spending in which piece of GDP? - CORRECT
ANSWER Investment"
"What would be the best explanation for an economy with inflation and falling spending? -
CORRECT ANSWER Rising oil prices (SRAS shifts left)"
"What will happen to the natural rate of unemployment if a new phone app were to speed up
the job search process? - CORRECT ANSWER It will fall"
"The concept of "zero sum" is _________ because.... - CORRECT ANSWER Incorrect; since
1800 most countries have seen a rise in real gdp" "WHich method would you use if you wanted to convert the prices of a car in 1980 to an
equivalent price today? - CORRECT ANSWER The division method"
"If the natural rate of unemployment rises, potential gdp will... - CORRECT ANSWER Fall"
"According to AD-SRAS, interest rates affect... - CORRECT ANSWER Consumption and
Investment"
