ECON 1100 Study Guide - Quiz Guide: Gross Domestic Product, Price Signal, Macroeconomics

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silverwater-buffalo30

12 Feb 2016

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In eveline adomait and richard maranta"s book dinner party economics, it discusses key concepts in macroeconomics, such as: growth, inflation, unemployment, gross domestic product (gdp), inequality, money supply, government and personal debt and deficits. I will talk about the macroeconomic indicators and their problems, when measuring inflation, gdp and unemployment. One of the most basic facts of economic life is that the cost of most products and services rise over time; this process is known to be as inflation. Inflation is a continuous boost in the price level of goods and services in a economy over a point time. Inflation is a key concept in this course as it refers to an increase in prices across many goods and services in a financial system over a span of time. One problem with computing inflation is modifying the excellence of goods.

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There are probably a thousand macroeconomic indicators, some measure the overall national economy, but some are more limited in scope. The three most often quoted and publicized are the Gross Domestic Production Index (GDP), the Consumer Price Inflation Index (CPI), and the Unemployment Index. Please complete the short answer questions regarding these three indicators:

A. Use the table below:

Table 6-1

	*Value (in billions)*
Personal consumption expenditures	$1,000
Gross private domestic investment	$500
Net exports	$300
Imports	$180
Government purchases of goods and services	$280
Transfer Payments	$90

a. What is the value of GDP?

b. In each of the following cases indicate if GDP is affected,+ under what category, and what happens to GDP. Be sure to explain why or why it is not included.

You buy a used textbook from one of your classmates.
You buy a new umbrella.
Ella, a French tourist, has a haircut in a salon in San Francisco.
Oklahoma cleans up after a devastating tornado.
A pension payment to a retired military person.

B. Why do some people gain and other people lose from inflation and deflation?

C. Define the natural rate of unemployment. Identify three factors that may cause the natural rate to change over time.

D. What is structural unemployment? State the various reasons due to which it can arise in an economy.

fuchsiabadger346

1. What are the three key macroeconomic variables?

2. What are the three macroeconomic objectives?

3. Define GDP? What it omits to avoid multiple counting? What does it fail to capture?

4. What are the three approaches to the measurement of GDP?

5. Differentiate between Real and nominal GDP.

6. What are CPI, PPI, GDP deflator?

7. What are the methods to measure the rate of inflation?

8. What is the application of the rate of inflation?

9. What are the weaknesses of CPI as a measure of the change in the cost of living over time?

10. Explain Purchasing power parity adjustment.

11. What is economic growth?

12. Define Rule of 70.

13. Labor Force: Define it. Who is included and who is excluded from the labor force?

14. What is the difference between the unemployment rate and labor force participation rate?

15. What are the different types of unemployment?

16. What is a natural unemployment rate?

17. What are the factors that cause natural unemployment?

cyanworm673

Suppose that the are two goods in the economy, Xylophones (X) and Yams (Y). In year t, consumers in the economy purchase 20 Xylophones at a price of $20 each and 100 Yams at a price of $2 each. In year t + 1, consumers in the economy purchase 18 Xylophones at a price of $30 each and 150 Yams at a price of $2.50 each.

1. Calculate the GDP deflator in years t and t + 1 with base year t. What is inflation according to this deflator? Show each step. (Hint: it will be helpful for you to first calculate nominal and real GDP in years t and t + 1. When you calculate real GDP, make sure that you use the appropriate base year).

2. Calculate the GDP deflator in years t and t + 1 with base year t + 1. What is inflation according to this deflator? Show each step. (Hint: you will need to calculate real GDP in years t and t + 1 using a different base year than you used in part 1. Once you calculate real GDP with the appropriate base year, you will follow the same steps that you did in part 1.)

3. Compare your answers to a and b above. Are they the same? If not, why not? How does chain-weighting address any potential difference?

4. Calculate the CPI in years t and t + 1, using year t as the base year.

5. Describe two ways in which the CPI differs from the GDP deflator.

6. There are several problems with using the CPI to calculate real GDP and measure growth. One of these problems is that the CPI does not account for changes in the quality of goods sold over time. A computer today is significantly more efficient than it was even just ten years ago, so even if the price of computers rise with inflation, you are getting significantly more computing power per dollar. How would this bias estimates of GDP growth and inflation?

ECON 1100 Study Guide - Quiz Guide: Gross Domestic Product, Price Signal, Macroeconomics

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