Measuring A Nations Income
Define GDP and explain the important terms in this definition
GDP is the market value of all final goods and services produced within a country in a given period of time.
Market value = price paid
all = all legal production
final = end users
produced = no used items
within = inside a country's border
period of time = per quarter or year
True or False
it is impossible for real interest rates to be negative
False
If inflation exceeds the nominal inters rate, the real interest rate is negative
True or False
The only factor of production that is not "produced" is natural resources.
True
True or false
The GST is a consumption tax that encourages greater saving
True
Why does income = expenditure = GDP?
Income of the seller = expenditure of the seller and either one can be used to measure GDP
If the nominal interest rate is 12% and the rate of inflation 7% then what is the real interest rate
12% - 7% = 5%
Why might investment in human capital be particularly productive?
Because of spillover effects or externalities
In a closed economy, what is the identity for savings?
S = Y - C - G
savings is what remains after consumption expenditures and government purchases
If the real GDP in 2016 exceeds the real GDP in 2015 did real output rise? Did prices rise?
Real output rose because the value of output in each year is measured in constant base year prices. There is no information on prices.
What does the consumer price index attempt to measure
The overall goods and services purchased by the typical consumer
Which one of the following government policies will likely lead to increasing growth in the Central African Republic?
a) restrictions on foreign capital investment
b) increased spending on health and nutrition
c) decreased expenditures on public education
d) restgrictions on property rights?
b) increased spending on health and nutrition
Which one of the following occurs when an increase in the budget deficit causes a government to increase its borrowing?
a) Demand for loanable funds shifts to the right
b) Demand for loanable funds shifts to the left
c) Supply for loanable funds shifts to the left
d) Supply for loanable funds shifts to the right
c) Supply for loanable funds shifts to the left
a) Next exports increase by $60,000
b) Net exports decrease by $60, 000
c) Investment increases by $60,000 and net exporrts increase by $60,000
d) Consumption increases by $60,00 and net exports decrease by $60,000
d) Consumption increases by $60,00 and net exports decrease by $60,000
Suppose there is an increase in the price of BMW automobiles imported from Germany. Would this have a larger impact on the CPI or on the GDP deflator?
The CPI because BMWs are in are in a typical consumption basket but are not included in Canadian GDP
Explain the opportunity cost of investing in capital.
Does any difference exist in the opportunity cost of investing in human capital versus investing in physical capital?
The opportunity cost of investing in capital is that someone must forgo current consumption.
No, there is no difference in the opp. cost of investing in physical or human capital, regardless of whether education or machines are purchased with the savings.
What is the difference between financial markets and financial intermediaries?
In a financial market, savers lend directly to borrowers. Through financial intermediaries savings lend to an intermediary who then tends to a borrow
If Serena hires someone to mow her lawn instead of doing it herself, what will happen to GDP? Why? Did the output change?
Her output will rise because the mowing of the law becomes a market transaction. However, her output has not increased.
Explain the three measurement problems with CPI
1. Commodity substitution bias
2. introduction of new goods
3. unmeasured quality change
how does ppopulation growth affect productivity?
On one hand, when population growth is rapid, each worker is equipped with less capital, which leads to lower productivity.
On the other hand, if the population is larger, then more scientists and inventors will exist to contribute to technological advancement, which can lead to higher productivity.
Which is likely to give you a greater return, a chequing deposit at a bank or the purchase of a corporate bond? Why?
A corporate bond will likely give a greater ratee of return because the bond is riskier and because "direct" lending through a financial market has fewer overhead costs than "indirect" lending through an intermediary (i.e the bank).