Economics test - CHAPTERS 6&7
Inflation increased unexpectedly due to increase in oil prices. Who is winning?
Borrowers
A higher interest rate
Increases the motivation to delay consumption and SAVE
How does GDP deal w/ a Ford produced in Mexico?
It isn't counted at all
How does GDP deal w/ a Toyota produced in Kentucky?
It's fully counted
If the inflation rate turns out to be less than was is expected to be, the clear winners are...
Lenders
Majority of economists believe the Consumer Price Index (CPI) ...
Overstates the increase in the cost of living
Microeconomics
Part of the discipline of eco that deals w/ individual markets & firms
Macroeconomics
Part of the discipline of eco that deals w/ the economy as a whole
Expenditures approach to GDP equals
Consumption + gross investment + govt purchases + net exports
In measuring GDP, goods produced by foreign firms in the US are...
Counted, but goods produced by US firms aren't counted in foreign countries
If the unemployment rate falls bc the # of ppl not working but searching for work falls, economists would attribute this to the...
Discouraged worker effect
GDP is counted using 2 methods: one counts all the ways ppl _____ $ and the other counts the ways people _____ $
Earn; spend
Is ppl are now saving for their retirement then this will cause the equilibrium interest rate...
To rise
Reasons GDP isn't synonymous w/ social welfare:
• environmental quality is ignored • ignores the value of leisure
In early 2005, inflation increased unexpectedly due to an increase in oil prices. This hurt...
• lenders • people on fixed incomes
Inflation rate
% increase in consumer price index
GDP
(Gross domestic product) $ value of all goods and services produced for final sale in the US in a year
RGDP
(Real gross domestic product) Inflation adjusted measure of GDP
Inflation rate is 3%. Nominal interest rate is 4%. The real interest rate is...
1%
What can make the unemployment rate rise?
An increase in the # of ppl looking for work and a decrease in the # of ppl w/ jobs
Why are only final sales counted in GDP?
Avoid double counting of goods that are sold
Form of risk to the lender associated w/ a borrower not paying their debt is...
Default risk
Economists consider deflation...
Dangerous, as it can lead to a depression
To look at the savers' behavior in a supply&demand model for the market for money we typically use...
SUPPLY CURVE
If people are saving for their retirement this will cause the...
Supply for loanable funds to increase
Deflation occurs when...
The average price level (CPI) falls