Econ test 2

The difference between nominal income and real income is as follows: - Nominal income is the number of dollars earned - real income is a measure of the purchasing power of one's nominal income after adjusting for inflation.

True

Changes in the stocks of finished goods and goods in process as well as changes in the raw materials that businesses keep on hand is known as

inventory investment.

change in inventories

investment spending

who started war communism & new Econ policy

lenin

why do we use the CPI

measure & track changes in the cost of living for consumers

adjust nominal savings for inflation

(initial savings deposit)*(1+ interest earned)/ (1+ inflation rate)

The difference between real GDP and nominal GDP is:

- Nominal GDP: dollar amount of all output produced without adjusting for inflation; - Real GDP: quantity of output produced after adjusting for inflation.

2 main methods of measuring GDP

- the income approach - the spending approach.

Within the United States economy, which one spending group accounts for roughly 70% of total output or GDP?

Consumption spending

The portion of GDP attributed to the government includes both transfer payments to the poor as well as government purchases of final goods.

False

Which of the following price indexes is the best overall indicator of overall inflationary pressures within an entire economy?

GDP deflator

hyperinflation

Hyperinflation is triggered by overspending relative to the amount of output that is produced. Hyperinflation is a very high, fast rate of inflation, generally higher than 500%.

Which of the following is included in government purchases when measuring GDP?

The President's income.

Gross Domestic Product (GDP) is

The sum of all income paid to the factors of production.

When measuring GDP via the income approach, we

add the income earned by the nation's resources in a given time period

The spending approach to GDP:

adds the dollar value of final goods and services

The income approach to measuring GDP

adds the income received by all factors of production.

3 sources of economic growth

aquisition of additional capital technological change efficiency gains

Profits

are a cost of doing business because entrepreneurs would not incur the risk of starting a business if they didn't expect to earn profits.

4 spending groups

consumption gross investments government purchases net exports

The components of GDP using the demand or spending method are

consumption spending investment spending, government purchases and net exports.

2 growth rates compared to determine if living standards have improved

real GDP growth population growth

adjust nominal income for inflation

real income = nom income/ (1+ inflation rate)

what happens to supply vs demand when a price FLOOR is imposed

set above MP = market surplus

what happens to supply vs demand when a price CEILING is imposed

set below MP = market shortage

The components of the spending approach to measuring GDP include all of the following EXCEPT

the implicit payments for unpaid household work.

Real income is a measure of:

the purchasing power of one's nominal income

The computation of GDP by adding up the dollar value at current market prices of all final goods and services is

the spending approach

Net exports equal the

the value of exports minus the value of imports

Super Normal Profit

total rev> total economic costs

normal profit

total revenue = total cost

value of savings decrease when adjusted for inflation

true