GDP & National Accounts (Ch. 4)
The total market value of all final goods and services produced within a country in a year is called what?
Gross Domestic Product (GDP)
Name the four phases of the business cycle in order.
Expansion, Peak, Recession, Trough
The percentage of the labor force that is unemployed is called what?
Unemployment rate
The average of all prices in the economy is called the ________.
Price level
Which theory says population growth will erase economic gains?
Classical (Malthusian) growth theory
Why do we only count final goods in GDP?
To avoid double counting intermediate goods.
What is “potential GDP”?
The level of output the economy produces at full employment.
What are the three types of unemployment?
Frictional, structural, cyclical
What is the formula for the Consumer Price Index (CPI)?
Cost of basket in current year/Cost of basket in base year×100
Which theory views technology as unpredictable “luck”?
Neoclassical growth theory
What are the four components of GDP in the expenditure approach?
C + I + G + (X − M)
The Rule of 70 estimates what?
How many years it takes a variable to double.
When only frictional and structural unemployment exist, the economy is at what?
Full employment / natural rate of unemployment
Name two of the four main CPI biases.
New goods, quality change, substitution, outlet substitution
Which theory says knowledge is a public good and growth is self-sustaining?
New Growth Theory
The difference between nominal and real GDP is that real GDP is adjusted for what?
Changes in the price level (inflation)
What are the three main sources of labor productivity growth?
Physical capital growth, human capital growth, technological advances.
Which group wants a job but has stopped looking and is therefore not in the labor force?
Discouraged workers
what is the inflation rate formula
(CPI this year − CPI last year) / CPI last year ×100
What is the formula for labor productivity?
Real GDP÷Labor hours
Give one major limitation of GDP as a measure of well-being.
Any of: ignores nonmarket production, underground economy, environmental damage, or leisure time.
According to New Growth Theory, what drives technological innovation?
Profit incentives and knowledge accumulation.
If the actual unemployment rate is above the natural rate, what type of output gap exists?
Negative output gap
What does core inflation exclude, and why?
Food & energy, because they are volatile and distort trends.
Name the four preconditions required for economic growth.
Firms, markets, property rights, and a stable money system.