Inflation rate real interest rate real gdp agg expenditures cpi

GDP is the sum of consumer spending, investment, government purchases, and net exports, as represented by the equation: Y = C + I + G + NX

NEED TO REMEMBER that nx is exports minus imports

Real GDP. Billions in 2000 dollars 2006. 10900. 2007. 10950 2008. 11425 2009. 11300 41) Refer to Table 9-1. Using the table above, what is the approximate growth rate of real GDP from 2007 to 2008? A) 1% B) 2% C) 3% D) 4% Answer: 42) Refer to Table 9-1. Using the table above, what is the approximate growth rate of real GDP from 2008 to 2009? A) -2% B) -1% C) 1% D) 2% Answer: 43)The key idea of the aggregate expenditure model is that in any particular year, the level of ________ is determined mainly by the level of aggregate expenditure. A) frictional unemployment B) export spending C) government spending D) GDP Answer: D 44) A decrease in ________ can put your job at risk if aggregate expenditures fall. A) consumer confidence B) the natural rate of unemployment C) the inflation rate D) the length of a business cycle Answer: A 45) During the Great Depression, economists first began studying the relationship between A) changes in GDP and changes in interest rates. B) changes in aggregate expenditures and changes in GDP. C) changes in nominal GDP and changes in real GDP. D) changes in stock prices and changes in price controls. Answer: b

...2008-2007 / 2007 11425-10950= .0434x100= 4.4% 2009-2008/2008 11300-11425/11425= -.01x100= -1%

Reduction of labor force participation (Q27)27) Which of the following would reduce the labor force participation rate, all else equal? A) an increase in the number of people in the labor force B) an increase in the unemployment rate C) a decrease in the unemployment rate D) an increase in the working-age population

...27) Which of the following would reduce the labor force participation rate, all else equal? Answer D A) an increase in the number of people in the labor force B) an increase in the unemployment rate C) a decrease in the unemployment rate D) an increase in the working-age population

48) When aggregate expenditure is less than GDP, which of the following is true? A) There was an unplanned increase in inventories. B) Firms spent more on capital goods than they anticipated. C) Households bought more new homes than they anticipated. D) All of the above must be true when aggregate expenditure is less than GDP. Answer: 49) If economists forecast an increase in aggregate expenditure, which of the following is likely to occur? A) GDP will rise. B) GDP will fall. C) Wages will fall. D) Inventories will rise. Answer:

...48) When aggregate expenditure is less than GDP, which of the following is true? A) There was an unplanned increase in inventories. B) Firms spent more on capital goods than they anticipated. C) Households bought more new homes than they anticipated. D) All of the above must be true when aggregate expenditure is less than GDP. Answer: A 49) If economists forecast an increase in aggregate expenditure, which of the following is likely to occur? A) GDP will rise. B) GDP will fall. C) Wages will fall. D) Inventories will rise. Answer: A

39) The real rate of interest is A) the nominal interest rate plus the inflation rate. B) the nominal interest rate minus the inflation rate. C) the interest rate determined by the supply and demand in the money market. D) the nominal interest rate. Answer: 40) If you want to earn a real interest rate of 3% on money you lend, and you expect that inflation will be 2%, what nominal rate of interest will you charge? A) 1% B) 5% C) 6% D) 9% Answer:

...BNominal minus inflation 40) If you want to earn a real interest rate of 3% on money you lend, and you expect that inflation will be 2%, what nominal rate of interest will you charge? A) 1% B) 5% C) 6% D) 9% Answer: B

35) If the CPI changes from 125 to 120 between 2008 and 2009, how did prices change between 2008 and 2009? A) Prices increased by 5% . B) Prices decreased by 5% C) Prices increased by 25% . D) Prices decreased by 4%. Answer: 36) The formula for calculating the CPI is A) (Expenditures in the current year/Expenditures in the base year) × 100. B) (Expenditures in the current year × Expenditures in the base year)/100. C) (Expenditures in the base year/Expenditures in the current year). D) (Expenditures in the base year × 100)/(Expenditures in the current year) . Answer: A

...Priced decreased by 4% 120-125=-5. -5/125=-.-04x100=-4% (2009-2008)/2008. X100

08. 09 Nominal 10000. 12000 real. 95000. 105000 16) Refer to Table 7-4. Given the information above, what can we say has happened in the economy from 2008 and 2009? A) The price level has fallen. B) The price level has risen. C) The price level has remained constant

...price level has risen

CPI CPI 1982-1984=100 2008. 175 2009. 180 33) Refer to Table 8-1. Suppose that the data in the table above reflect price levels in the economy. What is the inflation rate between 2008 and 2009? A) 2.85% B) 3.5% C) 4.6% D) 5% E) 7.5%

2.85% (180-175)/175. X 100

Year. CPI 1982-1984=100 2008. 100 2009. 120 Inflation rate? ) 2% B) 5% C) 10% D) 12% E) 20% I don't understand what the 1984 info has to do with this question. It's in the next q also, but it makes no sense.

20% (120-100)/100. X100 2009-2008. / 100. X100

43)The key idea of the aggregate expenditure model is that in any particular year, the level of ________ is determined mainly by the level of aggregate expenditure. A) frictional unemployment B) export spending C) government spending D) GDP Answer: 44) A decrease in ________ can put your job at risk if aggregate expenditures fall. A) consumer confidence B) the natural rate of unemployment C) the inflation rate D) the length of a business cycle Answer: 45) During the Great Depression, economists first began studying the relationship between A) changes in GDP and changes in interest rates. B) changes in aggregate expenditures and changes in GDP. C) changes in nominal GDP and changes in real GDP. D) changes in stock prices and changes in price controls. Answer:

43)The key idea of the aggregate expenditure model is that in any particular year, the level of ________ is determined mainly by the level of aggregate expenditure. A) frictional unemployment B) export spending C) government spending D) GDP Answer: D 44) A decrease in ________ can put your job at risk if aggregate expenditures fall. A) consumer confidence B) the natural rate of unemployment C) the inflation rate D) the length of a business cycle Answer: A 45) During the Great Depression, economists first began studying the relationship between A) changes in GDP and changes in interest rates. B) changes in aggregate expenditures and changes in GDP. C) changes in nominal GDP and changes in real GDP. D) changes in stock prices and changes in price controls. Answer: b

48) When aggregate expenditure is less than GDP, which of the following is true? A) There was an unplanned increase in inventories. B) Firms spent more on capital goods than they anticipated. C) Households bought more new homes than they anticipated. D) All of the above must be true when aggregate expenditure is less than GDP. Answer: 49) If economists forecast an increase in aggregate expenditure, which of the following is likely to occur? A) GDP will rise. B) GDP will fall. C) Wages will fall. D) Inventories will rise. Answer

48) When aggregate expenditure is less than GDP, which of the following is true? A) There was an unplanned increase in inventories. B) Firms spent more on capital goods than they anticipated. C) Households bought more new homes than they anticipated. D) All of the above must be true when aggregate expenditure is less than GDP. Answer: A 49) If economists forecast an increase in aggregate expenditure, which of the following is likely to occur? A) GDP will rise. B) GDP will fall. C) Wages will fall. D) Inventories will rise. Answer: A

48) When aggregate expenditure is less than GDP, which of the following is true? A) There was an unplanned increase in inventories. B) Firms spent more on capital goods than they anticipated. C) Households bought more new homes than they anticipated. D) All of the above must be true when aggregate expenditure is less than GDP. Answer: A 49) If economists forecast an increase in aggregate expenditure, which of the following is likely to occur? A) GDP will rise. B) GDP will fall. C) Wages will fall. D) Inventories will rise. Answer: A

57) On the 45-degree line diagram, the 45-degree line shows points where real aggregate expenditure equals A) unplanned investment. B) planned investment. C) real GDP. D) nominal GDP. Answer: C

Aggregate Expenditure is?

Aggregate expenditure (AE) is the sum of consumption, investment, government purchases, and net export. Of these four sectors, the consumption represents the largest share. The consumption function: C = Co + MPC (Yd) C = total consumption Co = autonomous consumption whose amount is independent of disposable income MPC = marginal propensity to consume. This is a fraction between 0 and 1; and MPC is equal to change in consumption brought about by a change in disposable income. (MPC = change in C / change in Yd ) Yd = disposable income. A similar concept as MPC is MPS: marginal propensity to save. It is equal to change in savings (S) brought about by a change in disposable income. (MPS = change in S / change in Yd)

Putting it all together

Aggregate expenditure (AE) is the sum of consumption, investment, government purchases, and net export. Of these four sectors, the consumption represents the largest share. The consumption function: C = Co + MPC (Yd) C = total consumption Co = autonomous consumption whose amount is independent of disposable income MPC = marginal propensity to consume. This is a fraction between 0 and 1; and MPC is equal to change in consumption brought about by a change in disposable income. (MPC = change in C / change in Yd ) Yd = disposable income. A similar concept as MPC is MPS: marginal propensity to save. It is equal to change in savings (S) brought about by a change in disposable income. (MPS = change in S / change in Yd) Since all income must be either consumed or saved, then any change in income must also be consumed or saved. Therefore: MPC + MPS = 1 The average propensity to consume (APC) is the portion of income spent on consumption. (APC = C / Yd) The average propensity to save (APS) is the portion of income saved. (APS = S / Yd) Again, APC + APS = 1 EQUILIBRIUM GDP Equilibrium GDP is the level of output whose production will create total spending just sufficient to purchase that output. If the economy produces an amount of goods that differs to the amount that the four sectors of the economy buy (AE), AE and aggregate production ( AP) are not equal; then the economy is in disequilibrium. When AE < AP, firms will involuntarily accumulate inventory. This will signal firms that they have overproduced. As a result, firms will cut back on production and/or prices. This will decrease the total value of output, moving the economy towards the equilibrium GDP. When AE > AP, inventories will be depleted unexpectedly. This will signal firms that they have not produced enough. As a result, firms will increase productions and/or prices. This will increase the total value of output, moving the economy towards the equilibrium GDP.

40) If you want to earn a real interest rate of 3% on money you lend, and you expect that inflation will be 2%, what nominal rate of interest will you charge? A) 1% B) 5% C) 6% D) 9% Answer: If you want to earn a real interest rate of 4% and you expect inflation will be 5%, what nominal rate will you charge?

B 3+2=5% 3(real)=5(nom)-2(inflation) 4+5=9% Real int rate =nominal minus inflation.

Look at sheet!!!!!!!! To see table! 37) Refer to Table 8-4. Suppose an economy has only three goods and the typical family purchases the amounts given in the table above. If 2004 is the base year, then what is the CPI for 2009? A) 14.3 B) 87.5 C) 114.3 D) 160 Answer:

B.1400/1600=.875x100=87.5

57) On the 45-degree line diagram, the 45-degree line shows points where real aggregate expenditure equals A) unplanned investment. B) planned investment. C) real GDP. D) nominal GDP. Answer

C

2000 '08 Exp based on '00 A $ 50. 300. $70. 420 B $25. 100. $30. 120 C $1. 100. $5. 500 Total. 500. 1040 38) Refer to Table 8-5. Suppose an economy has only three goods and the typical family purchases the amounts given in the table above. If 2000 is the base year, then what is the CPI for 2008? A) 40.08 B) 100 C) 180 D) 208 Answer:

D. 1040/500=2.08. X100= 208

If economists forecast an increase in aggregate expenditure, which of the following is likely to occur? A) GDP will rise. B) GDP will fall. C) Wages will fall. D) Inventories will rise.

GDP will rise

Real GDP definition and calculation

GDP is simply a calculation that measures the market value (final price) of all the final goods and services produced within the borders of our country. Thus, U.S. GDP includes Toyotas produced in Alabama but excludes Cadillac's made in Canada. GDP includes all U.S. exports but excludes all U.S. imports since imports, by definition, are produced in some other country and are a part of that country's GDP. Our Simple Economy nSuppose an economy produces three goods or services, Window Washing, Baseballs, and Hammers. Data for the past three years can be found below. 2006. 2007. 2008 90. $50 100 $60. 100. $65 75 $2. 100 $2. 120. $2.25 50 $30. 50. $25. 65 $25 Nominal GDP Step 1: Calculate Nominal GDP (The value of final goods and services evaluated at current-year prices) for each year: NGDP2006 = Q2006 x P2006 = (90 x $50.00) Window Washing + (75 x $2.00) Baseballs + (50 x $30.00) Hammers = $6,150 Nominal GDP 2007 NGDP2007 = Q2007 x P2007 = (100 x $60.00) Window Washing + (100 x $2.00) Baseballs + (50 x $25.00) Hammers = $7,450 Nominal GDP 2008 NGDP2008 = Q2008 x P2008 = (100 x $65.00) Window Washing + (120 x $2.25) Baseballs + (65 x $25.00) Hammers = $8,395 Real GDP nStep 2: Calculate Real GDP (The value of final goods and services evaluated at base-year prices) for each year. For our example assume 2006 is the base year. This means that all values are in what we call "2006 Dollars", or "Constant Dollars". Real GDP nBy using the prices from the base-year, (or holding prices constant over time), we eliminate the impact that rising prices have on GDP, to get a measure of "Real" economic activity. Real GDP in 2006 RGDP2006 = Q2006 x P2006 = (90 x $50.00) Window Washing + (75 x $2.00) Baseballs + (50 x $30.00) Hammers = $6,150 Note: For the Base-Year Nominal GDP always equals Real GDP Real GDP in 2007 RGDP2007 = Q2007 x P2006 = (100 x $50.00) Window Washing + (100 x $2.00) Baseballs + (50 x $30.00) Hammers = $6,700 Note: We use "Current Quantities" and "Constant Prices". Real GDP in 2008 RGDP2008 = Q2008 x P2006 = (100 x $50.00) Window Washing + (120 x $2.00) Baseballs + (65 x $30.00) Hammers = $7,190 Note: We still use "Current Quantities" and "Constant Prices". Calculate the Growth Rate in Real GDP between 2006 and 2007 %Change = [(RGDP2007 - RGDP2006)/RGDP2006] x 100 %Change = [(6,700 - 6,150)/6,150] x 100 %Change = 8.94% That is real GDP grew by 8.94% between 2006 and 2007. Calculate the Growth Rate in Real GDP between 2007 and 2008 %Change = [(RGDP2008 - RGDP2007)/RGDP2007] x 100 %Change = [(7,190 - 6,700)/6,700] x 100 %Change = 7.31% That is real GDP grew by 7.31% between 2007 and 2008.

39. The real rate of interest is A) the nominal interest rate plus the inflation rate. B) the nominal interest rate minus the inflation rate. C) the interest rate determined by the supply and demand in the money market. D) the nominal interest rate

Nominal minus inflation

) If real GDP increases we know for sure that A) output has risen. B) prices have risen. C) prices have risen but output has remained constant. D) prices

Output has risen

2004. 2009 product. Q p. Q. P Movies. 20. 6. 30. 7 Burgers 100. 2. 90. 2.50 Bikes. . 3. 1000. 6. 1100 20) Refer to Table 7-5. Suppose that a very simple economy produces three goods: movies, burgers, and bikes. Suppose the quantities produced and their corresponding prices for 2004 and 2009 are shown in the table. What is real GDP in 2009, using 2004 as the base year? A) $3,320 B) $3,690 C7035 D6360

This year's q with base year's prices 30x6 =180 90x2=180 6x 1000 =6000 180+180+6000=6360

Look at last info card again to answer this question under equilbrium GDP 48) When aggregate expenditure is less than GDP, which of the following is true? A) There was an unplanned increase in inventories. B) Firms spent more on capital goods than they anticipated. C) Households bought more new homes than they anticipated. D) All of the above must be true

When aggregate expenditure is less than the GDP, there was an unplanned increase in inventories.