MACRO ch.19.2

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An oil embargo has raised the price of fossil fuels, decreasing aggregate supply and causing real GDP to decrease from $10,000 to $9,000. What is the percent change in real GDP? If the change is a decrease in GDP, make sure to express your answer as a negative number. If necessary, round your answer to the nearest tenth.

-10% New GDP-Old GDP / Old GDP×100=% change

An earthquake destroys much of the capital stock within an economy, causing real GDP to decrease from $18,000 to $12,000. What is the percent change in real GDP?

-33.3%

If nominal GDP is $175,000 and the GDP deflator is 143, what is real GDP? Round your answer to the nearest hundredth.

122,377.62 $175,000143/100

Businesses become more optimistic and increase business expenditures on investment, causing real GDP to increase from $17,500 to $20,000. What is the percent change in real GDP? Round your answer to the nearest tenth.

14.3% 20,000-17,500 / 17,500×100=14.3%

Nominal GDP recently decreased by 2% following contractionary fiscal policy. Meanwhile, the price level decreased by 7%. What is the real GDP growth rate during this period? Round your answer to two decimal places.

5% % change in Quantity =−2%−(−7%)=5%

how to find real gdp when given nominal gdp & gdp deflator

Real GDP =Nominal GDP / Price Index/100

The GDP deflator is ______________.

a price index measuring the average prices of all goods and services The GDP deflator is a price index measuring the average prices of all goods and services included in the economy.

A(n) ______ is an especially lengthy period, where real GDP experiences a severe drop.

depression We call a decline in real GDP that typically lasts at least two consecutive quarters a recession. We call an especially lengthy and deep recession a depression. The severe drop in GDP that occurred during the 1930s Great Depression is clearly visible in the figure, as is the 2008-2009 Great Recession.

change in nominal GDP equation

nominal GDP (OG)- nominal GDP / nominal GDP (OG) ×100=% change

real GDP growth rate (% change in quantity) equals

the growth rate in nominal GDP (% change in value) minus the inflation rate (% change in price).

Which of the following is the correct definition of real value?

the value of a good or service after adjusting for changes in inflation The definition of real value is the value of a good or service after adjusting for changes in inflation. Generally, the real value is a more important statistic than the nominal value since it tells us more about how to interpret the amount.

What is the term for the point in the business cycle where real GDP reaches its lowest point and begins rising?

trough A trough is the lowest point of a recession, where real GDP stops falling and begins rising.

Within an economy's business cycle, what is the lowest point of a recession called?

trough We call the highest point of the economy, before the recession begins, the peak. Conversely, the lowest point of a recession, before a recovery begins, is the trough. Thus, a recession lasts from peak to trough, and an economic upswing runs from trough to peak. We call the economy's movement from peak to trough and trough to peak the business cycle.

change in real GDP equation

New GDP-Old GDP / Old GDP×100=% change

Using the table below, determine the growth in real GDP from 1960 to 1990. Round your answer to the nearest whole percent.

188% 8,225−2,859.5 / 2,859.5×100=188%

Suppose that consumers become more pessimistic about the economy. This causes the price level to decrease as represented by the GDP deflator dropping to 98. Nominal GDP also decreases to $28,000. What is real GDP? Round your answer to the nearest hundredth.

28,571.43 Real GDP =Nominal GDP / Price Index/100 Real GDP =$28,000 / 98/100

An increase in productivity increases aggregate supply which causes real GDP to increase from $7,500 to $8,000. What is the percent change in real GDP? Round your answer to the nearest tenth.

6.7% 8,000-7,500 / 7,500×100=6.7%

An increase in population has increased aggregate demand within an economy, causing both output and prices to increase. Economists have estimated that this change has increased nominal GDP by 14% and the price level by 7%. What is the real GDP growth rate for this period?

7% % change in Quantity =% change in Nominal −% change in Price % change in Quantity =14%−7%=7%

Why do economists care about recessions?

Many people lose work and struggle to support themselves financially. Economists care about recessions because during these periods many people lose work and struggle to support themselves financially. Even those who do not lose work may see cuts in hours or pay, which lowers their standard of living.

A moderate decline in real GDP that lasts two or more consecutive quarters is known as a __________.

recession We call a decline in real GDP that typically lasts at least two consecutive quarters a recession. We call an especially lengthy and deep recession a depression.


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