GDP
These four components are added together in order to calculate Real GDP using the expenditures approach.
What are consumer spending (C), business investment (I), government spending (G), and net exports (X-M)?
This is the formula for the unemployment rate.
What is the number of people that are unemployed divided by the number of people in the labor force x 100?
This refers to an increase in prices over time.
What is inflation?
This is the reason that real GDP is better than nominal GDP at measuring true economic
What is that real GDP adjusts for inflation?
Decide which of the following transactions would count towards GDP for the United States.
A father purchases a new car for his daughter that is sold in the United States and was produced in Germany.
A restaurant purchases a large industrial oven.
A teacher purchases stock in a curriculum design company.
What is a restaurant purchases a large industrial oven?
In the circular flow model of economics, this group of people are supply resources and demand goods and services.
Who are households? (individuals, consumers)
This type of permanent unemployment occurs when workers skills become obsolete and are not transferrable.
What is structural unemployment?
This is a collection of commonly purchased consumer goods used in the calculation of the CPI.
What is a market basket?
What is 120?
Nominal $600 million / Real GDP $500 million x 100
Explain two limitations of GDP.
What are population, inequality, environment, and shadow economy?
These four components are added together in order to calculate GDP using the income approach.
What are rent, wages, interest, and profit?
This term refers to the unemployment rate when there is no cyclical unemployment. It usually falls between 4 and 6%.
What is the natural rate of unemployment? (NRU)
Use the following CPI data to answer the question that follows:
Year CPI
2023 100
2024 106
2025 111
2026 114
Disinflation occurred during this period.
What is between 2025 and 2026?
An economy produces 100 computers. In Year 1, each computer sells for $500. In Year 2, each computer sells for $600. If Year 1 is the base year, this would be the real GDP in Year 2.
What is $50,000?
Year 2 quantity (100) x Base year prices ($500)
Economists predicted that inflation would be 4% but it turned out to be 6%. Determine which of these people would benefit from this.
A retiree receiving a fixed monthly pension
A worker whose wages are fixed by a long-term contract
A borrower with a fixed-rate loan
A person holding a large amount of cash
What is A borrower with a fixed-rate loan?
The person would have more purchasing power when they have access to the money. As they pay it back to the lender, the purchasing power would decrease due to the unexpected inflation.
This would be the GDP if a nation's total consumption was $600 million, businesses spent $150 million on capital goods and inventory, the government spent $200 million on infrastructure and defense, imports were $250 million and exports were $100 million.
What is $800 million?
An economy has 50 million adults. Initially, 75 million are employed, 5 million are unemployed and actively seeking work, and 6 million are not in the labor force. After many months of looking for work, 3 million people stop looking. Calculate the initial unemployment rate and then state whether that number will increase, decrease, or stay the same after those people gave up looking.
What is 6.25%? What is decrease? (The labor force would shrink to 77 million and the number of unemployed would become 2 million - 2/77 = 2.6%)
A market basket costs $500 in the base year and $600 in the current year. Calculate the CPI for the current year.
What is 120? (600/500 x 100)
An economy's nominal GDP increases by 8%, while its real GDP decreases by 2%. State whether the overall price level increased or decreased.
What is increased?
Nominal GDP can increase because of higher prices and/or greater production. Since real GDP decreased while nominal GDP increased, the increase in nominal GDP must have been driven by higher prices.
A farmer sells wheat to a baker for $20. The baker uses the wheat to make bread and sells the bread to a customer for $50. Using the value added approach, calculate how much this transaction contributes to GDP.
What is $50?
This the best measure of both standard of living and economic growth. (Be very specific)
What is Real GDP per capita?
Country A has:
5,000 people not working but actively looking
2,500 discouraged workers
70,000 working full time
2,000 stay at home parents
5,000 underemployed
4,000 retired people
Calculate the labor force participation rate to the nearest whole number.
What is 90%?
The CPI increases from 150 to 162. During the same year, a worker's nominal wage increases from $50,000 to $52,000. Calculate whether or not the worker's purchasing power increased or decreased?
What is decreased?
Inflation = 162-150 / 150 x 100 = 8%
Wages = $52,000 - $50,000 / $50,000 x 100 = 4%
A country's GDP data is:
Year 1: Nominal GDP $500 billion, Real GDP $500 billion
Year 2: Nominal GDP $600 billion, Real GDP $550 billion
Determine whether only production increased, only price increased, or both prices and production increased.
What is both increased?
Real GDP increased, meaning production increased, but the GDP deflator also increased, indicating that the price level increased as well.
This term describes an economy that is operating at the maximum level of employment without causing significant inflation.
What is full employment?