ECON 0110 Lecture Notes - Lecture 7: Xm Satellite Radio, Black Market, Social Security

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Real versus nominal GDP

Consider a simple economy that produces two goods: apples and muffins. The following table shows the prices and quantities of the goods over a three-year period.

Use the information from the previous table to fill in the following table.

1. From 2009 to 2010, nominal GDP (decreased or increased), and real GDP (decreased or increased).

2. Why is real GDP a more accurate measure of an economy's production than nominal GDP?

A. Real GDP measures the value of the goods and services an economy produces, but nominal GDP measures the value of the goods and services an economy consumes.

B. Nominal GDP is adjusted for the effects of inflation or deflation, whereas real GDP is not.

C. Real GDP is not influenced by price changes, but nominal GDP is.

1. Gross Domestic Product equals the :
total output of all goods and services produced by resourceslocated in the U.S.
market value of all goods and services produced by resourceslocated in the U.S.
market value of all final goods and services produced by resourceslocated in the U.S.
value added to the economy by intermediate goods and services minusoriginal cost


2. Which of the following is not considered a component ofinvestment when calculating GDP?
new residential construction
construction of new factories
net increases in inventory
purchases of corporate stock


3. Which is true of leakages and injections in the circularflow?
Leakages minus injections equal GDP.
Injections minus leakages equal GDP.
Leakages minus injections equal zero in equilibrium.
Domestic leakages must equal domestic injections.


4. Because of activity in the underground economy,
GDP statistics understate the true volume of economicactivity
GDP statistics overstate the true prices in the economy
consumers are not as well off as GDP statistics indicate
firms' profits are higher than GDP statistics indicate


5. The consumer price index measures changes in
the prices of all goods and services
the prices of goods that are sold
the total cost of a specific market basket of consumer goods andservices
the total costs of all goods and services


6. The unemployment rate is the
percentage of people in the economy who do not hold jobs
percentage of the labor force that does not have a job
number of people in the economy who have given up looking foremployment
number of people in the labor force without jobs


7. Which of the following people would be classified asunemployed?
a person who wants a job as a fashion model but cannot find work inthat field
someone who quits a part-time job to attend school full-time
someone who gives up looking for a job
a person who works at a job that underemploys his or herskills


8. Frictional unemployment refers to unemployment that resultsfrom
a mismatch of skills
being in the wrong geographical location
taking the time to find the best job
seasonal decreases in demand for labor


9. If the aggregate demand curve shifts rightward,
the price level increases and output decreases
the resulting increase in the price level is usually calledcost-push inflation
the resulting increase in the price level is usually calleddemand-pull inflation
the price level increases only if there is also a leftward shift ofthe aggregate supply curve


10. The Consumer Price Index measures the cost of
all goods and services produced in the U.S. economy
all goods produced in the U.S. economy
a fixed market basket of consumer goods and services produced inthe U.S. economy
a fixed market basket of producer goods and services