Econ 102 first test

Inflation rate formula

(CPI in current year- CPI in previous year)/ (CPI in previous year) *100

Policies to achieve faster economic growth

-create incentive mechanisms - encourage saving - encourage research and development - encourage international trade - improve the quality of education

A bias in the CPI has two main undesirable consequences: It leads to

1) Distortion of private contracts 2) Increases in government outlays and decreases in taxes

what two things determine the demand for loanable funds?

1. the real interest rate 2. expected profit

What is the base year if you don't have it for CPI

100

Which of the following is an example of a consumption expenditure 1) United buying Dell PCs 2) Peter buying stocks 3) Mary buying a house 4) Rachel buying a TV

4) Rachel buying a TV

Consumer Price Index

A measure of the average of the prices paid by urban consumers for a fixed market basket of consumption goods and services

Reference base period

A period for which the CPI is define to equal 100. Currently, the refernce base period is 1982- 1984

Business cycle

A periodic but irregular up-and-dwn movement of total production and other measures of economic activity

When using the income approach to measure GDP at market prices, in addition to summing all factor incomes it is necessary to____

Add indirect taxes less subsidies to convert aggregate income from factor cost to market prices

Chained-dollar real GDP is the measure of real GDP calculated by the​ _____.

Bureau of Economic Analysis

Total expenditure formula

Consumption + Investment + Government expenditure + Net Exports

What are the three steps of CPI calculation?

Find the cost of the CPI market basket at reference base period prices, Find the cost of the CPI market basket at current period prices, Calculate the CPI for the reference base period and the current period.

growth rate of real GDP per person

Growth rate of real GDP- Growth rate of population

Chained Consumer Price Index (C-CPI)

Is a measure of the price level calculated using current month and previous month prices and expenditures. It is called a "chained" CPI because the inflation rate calculated for the current month is linked back, like the links in a chain, to a reference base month

Exports of goods and services

Items that firms in the United States produce and sell to the rest of the world

Imports of goods and services

Items that households, firms, and governments in the United States buy from the rest of the world

Potential sources of bias in CPI:

New goods bias Quality change bias Commodity substitution bias Outlet substitution bias

job rationing

PAID A WAGE THAT CREATES AN EXCESS SUPPLY OF LABOR!@@@@@!! a situation that arises when the real wage rate is above the full-employment equilibrium level (less employers are hiring but more people want jobs and there is already full employment, so you need to lay people off basically)

Of the alternative measures of the price level, the ____ overcomes the bias of the CPI and is abetter measure of the inflation rate because IT _____

PCEPI; used a current basket of all consumption goods

intermediate goods

Products that are purchased for resale or further processing or manufacturing

What are the three stages of constructing the CPI?

Selecting the CPI market basket, Conducting the monthly price survey, calculating the CPI

What expenditures are not included in GDP?

Since GDP is the value of final goods and services, spending that is not on FINAL goods and services is not included in GDP This INCLUDES -Used goods -Financial assets

Net exports

Spending on domestic goods and services by foreigners minus spending on foreign goods and services by U.S. residences (exports- imports)

Net Taxes

Taxes paid minus cash benefits received from governments

Saving

The amount of income that is not paid in net taxes or spent on consumption goods and services

Real wage rate

The average hourly wage rate measured in the dollars of a given reference base year

depreciation

The decrease in the value of capital that results from its use and from obsolescence

Government expenditure on goods and services

The expenditure by all levels of government on goods and services

Rule of 70

The number of years it takes for the level of any variable to double is approximately 70 divided by the annual percentage growth rate of the variable

The supply of labor is the relationships between

The real wage rate and the quantity of labor supplied

Net exports of goods and services

The value of exports of goods and services minus the value of imports of goods and services

Potential GDP

The value of real GDP when all the economy's factors of production (labor, capital, land, and entrepreneurial ability) are fully employed

Nominal GDP

The value of the final goods and services produced in a given year expressed in terms of the prices of that same year

Keynesian economics

The view that the market economy is inherently unstable and needs active government intervention to achieve full employment and sustained economic growth (basically talks about economy in recession or depression)

classic macroeconomics

The view that the market economy works well, that aggregate fluctuations are a natural consequence of an expanding economy, and that government intervention cannot improve the efficiency of the market economy (provides story of the economy at or close to full employment)

What kind of financial assets are not included in GDP?

This includes buying financial assets such as bonds and stocks since this in considered making a loan, not buying a good or service

Real GDP

Value of the final goods and services produced in a given year expressed in terms of the prices in a reference based year

The expenditure approach formula ( same as total expenditure formula)

Y= Consumption + Investment + Government expenditures + Net exports

Total income formula

Y= Consumption + Saving + Net taxes

stock

a certificate of ownership and claim to a firm's profits

changes in demand for loanable funds: 1)increase in expected profit 2)decrease in expected profit

a change in the expected profit changes the demand for loanable funds shifts the demand for loanable funds curve 1) increase in expected profit- increases demand for loanable funds and shifts demand curve to the right 2) decrease in expected profit- decreases demand for loanable funds and shifts demand curve to the left

financial institution

a firm that operates on both sides of the markets for financial capital : It borrows in one market and lends in another

Cost of living index

a measure of the change in the amount of money that people need to spend to achieve a given standard of living

bond

a promise to pay specified sums of money on specified dates

efficiency wage

a real wage rate that is set above the full- employment equilibrium wage rate to induce greater work effort (pay more for better work in low- income jobs)

Production function

a relationship that shows the maximum quantity of real GDP that can be produced as the quantity of labor employed changes and all other factors of production remain the same

deflation

a situation in which the CPI is falling and the inflation rate is negative

economic growth

a sustained expansion of production possibilities

union wage

a wage rate that results from collective bargaining between a labor union and a firm

An economy can achieve faster economic growth without ______

an increase in population growth rate

An efficiency wage results in all of the following situation except ​_______.

an increase in the​ full-employment quantity of labor An efficiency wage is a real wage rate that is set above the​ full-employment wage rate. The​ full-employment quantity of labor does not increase as a result of an efficiency wage. An efficiency wage creates a surplus of labor.

When some factors of production are unemployed, real GDP is ____ potential GDP

below

CPI formula

cost of CPI basket at current period prices/ cost of CPI basket a base period prices *100

A decrease in the real wage rate ____ the quantity of labor supplied

decreases

A rise in the real wage rate _____ the quantity of labor demanded

decreases

U.S. national income= GDP- ______ - _______

depreciation, statistical discrepancy

When some factors of production are overemployed, real GDP is ____ potential GDP

exceeds

The value of production = ______ = _______

income, expenditure

A decrease in the real wage rate ____ the quantity of labor demanded

increases

A rise in the real wage rate ___ the quantity of labor supplied

increases

The natural unemployment rate _____

increases if unemployment benefits become more generous

Job rationing ____

increases the natural unemployment rate

Personal Consumption Expenditures Price Index (PCEPI)

is an average of the current prices of the goods and services included in the consumption expenditure component of the GDP expressed as a percentage of base year prices

markets for financial capital

loan markets, bond markets, stock markets

Advances in technology and growth of human capital make labor and capital _____

more productive and shift the productivity curve upward `

The increase in real GDP per hour of labor that results from an advance in technology makes labor​ ______ productive​ ______.

more, at all quantities of capital think of productivity function curve shifting upward- which would change the quantity at all values

gross national product = GDP + ____

net factor income

Real wage rate formula

nominal wage rate in 2015/ CPI in 2015 *100

Real GDP per person is not an accurate measure of the standard of living because it

omits the goods and services that people produce for themselves

The classical growth theory is that real GDP per person _____

only temporarily rises and then returns to subsistence level

Wage income

or compensation of employees is the total payment for labor services- this includes net wages and salaries plus fringe benefits paid by employers such as healthcare insurance, social security contributions and pension fund contributions

growth rate of real GDP

real GDP in current year- real GDP in previous year/ (real GDP in previous year) *100

labor productivity

real GDP/ Aggregate hours

Who does the CPI exclude

rural consumers, the military and the institutional population

Saving equals ____

saving equals income minus consumption expenditure minus net taxes

A____ is a final good and ____ is a intermediate good

tank of gasoline bought by you; jet fuel bought by southwest airlines

What determines the CPI market basket

the Consumer Expenditure Survey

loanable funds market

the aggregate of all the individual financial markets

Nominal wage rate

the average hourly wage rate measured in current U.S. dollars

net investment

the change in the quantity of capital- equals gross investment minus depreciation

statistical discrepancy

the discrepancy between the expenditure approach and the income approach estimates of GDP- calculated as the GDP expenditure total minus the GDP income total

nominal interest rate

the dollar amount of interest expressed as a percentage of the amount loaned

GNP (gross national product)

the market value of all the final goods and services produced anywhere in the world in a given time period by the factors of production supplied by the residents of that country

Inflation rate

the percentage change in the price level from one period to the next

In the new growth theory, the source of economic growth is _______

the persistent want for a higher standard of living

when the real interest rate decreases...

the quantity of loanable funds demanded increases

when the real interest rate decreases what happens to the supply of loanable funds?

the quantity of loanable funds supplied decreases

when the real interest rate rises what happens to the supply of loanable funds?

the quantity of loanable funds supplied increases

when the real interest rate increases...

the quantity of loanable funds supplied increases, and the quantity of loanable funds demanded decreases

demand for loanable funds

the relationship between the quantity of loanable funds demanded and the real interest rate when all other influences on borrowing plans remain the same

supply of loanable funds

the relationship between the quantity of loanable funds supplied and the real interest rate when all other influences on lending plans remain the same

Diminishing returns

the tendency for each additional hour of labor to produce a successively smaller amount of real GDP

capital or physical capital

the tools, instruments, machines, buildings, and other items that have been produced in the past and that are used to produce goods and services (inventories of raw materials, semi-finished goods, and components are part of physical capital)

gross investment

the total amount spent on new capital

net worth

the total market value of what a financial institution has lent minus the market value of what it has borrowed

wealth

the value of all the things people own

monetarist macroeconomics

the view that the market economy works well, that the aggregate fluctuations are a natural consequence of an expanding economy, but that fluctuations in the quantity of money generate the business cycle. A slowdown in the growth rate of money brings recession and a large decrease in the quantity of money brought the Great depression (in between previous two- need gov during recession and depression but the rest will fix itself)

The CPI measures the average prices paid by _____ for ____

urban consumer; the average basket of goods and services they buy

What categories does the U.S. national income and product account divide into?

wage income interest, rent, and profit income