GDP
Inflation
Practice Problems
Unemployment
The Business Cycle
100
The components of GDP
What are
consumption
investment
government purchases
net exports
100
Define Nominal and Real interest rate
Nominal Interest Rate:
the interest rate not corrected for inflation.
the rate of growth in the dollar value of a deposit or debt
Real Interest Rate:
the interest rate corrected for inflation.
the rate of growth in the purchasing power of a deposit or debt
100
Which of the following best describes an economy at full employment?
a. The rate of unemployment is zero.
b.There is only structural and cyclical unemployment.
c. There is only cyclical unemployment.
d.There is cyclical, but not structural, unemployment
e.There is frictional, but not cyclical, unemployment.
e. There is frictional, but not cyclical, unemployment
100
Name the types of Unemployment
Structural
Frictional
Cyclical
100
Name the 4 phases to the business cycle
Expansion
Peak
Trough
Recession
200
The formula for the GDP Deflator
What is GDP Deflator = Nominal GDP/ Real GDP x 100
200
The association between Nominal vs Real Interest Rate
What is Real Interest Rate = Nominal Interest Rate - Inflation Rate
200
If CPI goes from 100 to 300 and your salary goes from $100,000 to $200,000, what happened to your purchasing power
Decreased
200
A person quits their job in search for a better one, what kind of unemployment is this classified as
Frictional Unemployment
200
If an economy is at a trough in the business cycle, what is likely to occur next
Economic recovery or expansion
300
GDP adjusted for inflation measures growth over time
true or false
true
300
If you live on fixed income are you more likely to be harmed or helped by inflation? Why?
Harmed, because your purchasing power has decreased
300
A US car rental company spends 1 million dollars to purchase 30 new Toyotas produced in Japan. Calculate the impact on GDP
No Impact
300
A steel worker laid off during a recession is considered what type of unemployment
cyclical unemployment
300
Draw a quick sketch of the business cycle graph and make sure to label everything
400
If a car is produced in America and is sold in Europe, does it count towards the US GDP
yes
400
Name the 2 types of inflation and explain what they both mean
Demand Pull Inflation:
the economy demands more than it can produce (PPC), driving the prices up.
Cost-Push or Supply-Side Inflation:
the per unit cost of production increases, so the producers are willing to supply less goods and services at various prices, driving the price up.
400
Based on the economic figures in the table above, what is the value of gross domestic product, in billions of dollars?
$45,000
400
Is a laid off factory worker who has given up looking for a new job considered unemployed
No
400
what will most likely occur during the expansionary phase of the business cycle
Real GDP rises and unemployment falls
500
The Frank-Heggood Corporation began 2018 with $50 million in capital. In 2018, the Frank Heggood Company spent $400 million on inventory, $200 million on new capital, and experienced 10% depreciation of its capital.
Based on this information, what is the Frank Heggood Company’s contribution to gross domestic product (GDP) in 2018, and in what category is that contribution counted
$600 Million Counted in Investment
500
The annual inflation rate is expected to be 5 percent over the next 3 years. Juan plans to take out a 3-year loan to purchase an automobile. If Juan decides not to take out the loan if the real interest rate exceeds 3 percent, the highest nominal interest rate he is willing to pay is
8%
500
The table above shows the consumer price index for selected years. On the basis of these data, how much did it cost in 1995 to buy the same goods and services that cost $50 in 1929?
$300
500
Find the Unemployment rate
Labor force= 10,000
Employed = 4,000
60%
500
On the business cycle graph if time is on the X axis, what is on the Y axis
GDP