Row 1
An economy produces the following final goods in 2024:
CategoryValue
Consumption$9,000
Investment
$2,000
Government Spending$3,000
Exports$1,200
Imports$1,800
GDP = C + I + G + (X − M)
GDP = 9000 + 2000 + 3000 + (1200 − 1800)
GDP = 9000 + 2000 + 3000 − 600
GDP = $13,400
Base year basket cost = $80
Current basket cost = $104
Calculate CPI.
CPI = Cost Current / Cost Base × 100
104 / 80 × 100
= 130
A worker stops looking for work because they believe no jobs are available. How does this affect the official unemployment rate?
It understates unemployment because discouraged workers are not counted in the labor force.
This measures the total income earned by a nation's residents and businesses, including income earned abroad.
Gross National Income (GNI)
This occurs when the overall price level in the economy falls over time.
Deflation
You are given the following income data:
CategoryAmountWages $7,000, Profit $2,200, Investment Income $900, Rental Income $400, Indirect Taxes $600, Depreciation $500
GDI = W + Profit + Investment Income + Rental + Taxes + Depreciation
GDI = 7000 + 2200 + 900 + 400 + 600 + 500
GDI = $11,600
CPI 2023 = 120
CPI 2024 = 132
Find inflation.
Inflation = (132 − 120) / 120 × 100
12 / 120 × 100
= 10% inflation
Which GDP component includes new home construction and business equipment purchases?
Investment
This economic measure includes the value of goods and services produced by a country's residents regardless of where production occurs.
Gross National Product (GNP)
This describes a situation where inflation slows down but prices are still rising.
Disinflation
2023 Price = 8 Q = 100
2024 Price = 10 Q = 120
What is the nominal GDP and Real GDP
Nominal GDP = P(current) × Q(current)
10 × 120 = $1200
Real GDP = P(base) × Q(current)
8 × 120 = $960
Given the following:
Category
PeopleEmployed 7,200, Unemployed 800, Discouraged Workers 300, Working Population 10,000
Labor Force
Unemployment Rate
Labor Force Participation Rate
Labor Force = Employed + Unemployed
= 7200 + 800
= 8000
Unemployment Rate
UR = U / LF × 100
800 / 8000 × 100
= 10%
Labor Force Participation Rate
LFPR = LF / Working Population
8000 / 10000
= 80%
If imports are greater than exports, what occurs?
Trade deficit
This refers to the total income received by individuals before taxes but after transfers such as Social Security or unemployment benefits.
Personal Income (PI)
This occurs when the government or central bank stimulates the economy to bring inflation back up after a period of deflation.
Reflation
Nominal GDP = 1200
Real GDP = 960
calculate the GDPD
GDP Deflator = N / R × 100
1200 / 960 × 100
= 1.25 × 100
GDP Deflator = 125
If a country has:
GDP = $5 trillion
Population = 250 million
Find GDP per capita.
GDP per capita = GDP / Population
5,000,000,000,000 / 250,000,000
= $20,000
If exports are greater than imports, what occurs?
Trade surplus
This is the amount of income households have available to spend or save after taxes.
Personal Disposable Income (PDI)
This is a situation where high inflation occurs at the same time as high unemployment and slow economic growth.
Stagflation
GDP Deflator in 2023 = 110
GDP Deflator in 2024 = 125
Find the inflation rate.
Inflation = (Def2 − Def1) / Def1 × 100
(125 − 110) / 110 × 100
15 / 110 × 100
= 13.64% inflation
If an economy grows at 3.5% per year, how long will it take to double using the Rule of 70?
70 / 3.5
= 20 years
If nominal GDP rises but real GDP stays the same, what happened?
Prices increased (inflation), not real output.
This is the sustained increase in a nation's production of goods and services over time.
Economic Growth
This branch of economics studies the economy as a whole, including inflation, unemployment, and economic growth.
Macroeconomics