ECON 1951 FINAL EXAM PAPER 2026
COMPLETE QUESTIONS AND VERIFIED
SOLUTIONS
◉ What is GDP?
Answer: Total dollar value of all final goods and services produced in
a country during a year.
◉ Are intermediate or final goods calculated in a country's GDP?
Answer: Final
◉ What accounts for a negative number in inventories in the
measure of GDP?
Answer: If people buy more than what was produced in a given year.
◉ Are used item purchases accounted for in GDP calculations?
Answer: No
◉ In calculating GDP, what solves the issue of purchasing imported
goods and services?
,Answer: Imports are substracted from GDP calculations.
◉ What are the four general categories of calculating GDP?
Answer: Consumption (C)
Investment (I)
Government (G)
Foreign/Net Exports (X-M)
◉ How can GDP measure be deceptive? (6)
Answer: 1. Some things are produced but never sold, so not included
in GDP (ex: work of homeowners)
2. Some expenditures are hidden from data gatherers (ex: illegal
activities, black market)
3. Some items included in GDP do not reflect net benefits to society
(ex: Exxon oil spill)
4. Gov spending valued at cost, even though people might think its a
waste etc.
5. GDP does not account for nonrenewable resources
6. Hard to compare cross-country.
◉ What is the formula to calculate real GDP?
Answer: Nominal GDP/GDP deflator (P)
,◉ What is inflation?
Answer: Persistent rise in the general price level.
◉ How is the consumer price index (CPI) calculated?
Answer: Current cost of bundle/Base year cost of bundle x 100
◉ What does the CPI reflect?
Answer: Growth in prices of consumer goods and services.
◉ Why does the CPI have a high profile?
Answer: Main measure of inflation.
◉ What are two main problems with CPI?
Answer: 1. Changes in relative prices (changes in prices of bundles,
overestimate and underestimate)
2. Quality changes (improvements in quality vs. rise in price,
purchasing power of dollar for certain items ex: computer)
◉ What is the labor force?
Answer: People that want a job.
◉ What is the formula for unemployment?
, Answer: Unemployed/Labor force
◉ How can workers become discouraged? Why is this bad for the
measure of the unemployment rate?
Answer: People looking for work have looked for so long that they
become convinced there is no job out there for them.
They aren't part of the labor force anymore, unemployment drops,
causing an underestimation
◉ How can workers become encouraged? Why is this bad for the
measure of the unemployment rate?
Answer: When economy recovers from a recession, or workers
notice others getting jobs, discouraged workers become encouraged.
They suddenly become unemployed, causing rise in unemployment.
◉ What is the participation rate?
Answer: Labor force / Adult population
◉ What is frictional unemployment?
Answer: Unemployment corresponding to the ongoing process of
improving the occupational and geographical match of workers and
jobs.
◉ Why is zero unemployment unrealistic? (3)
COMPLETE QUESTIONS AND VERIFIED
SOLUTIONS
◉ What is GDP?
Answer: Total dollar value of all final goods and services produced in
a country during a year.
◉ Are intermediate or final goods calculated in a country's GDP?
Answer: Final
◉ What accounts for a negative number in inventories in the
measure of GDP?
Answer: If people buy more than what was produced in a given year.
◉ Are used item purchases accounted for in GDP calculations?
Answer: No
◉ In calculating GDP, what solves the issue of purchasing imported
goods and services?
,Answer: Imports are substracted from GDP calculations.
◉ What are the four general categories of calculating GDP?
Answer: Consumption (C)
Investment (I)
Government (G)
Foreign/Net Exports (X-M)
◉ How can GDP measure be deceptive? (6)
Answer: 1. Some things are produced but never sold, so not included
in GDP (ex: work of homeowners)
2. Some expenditures are hidden from data gatherers (ex: illegal
activities, black market)
3. Some items included in GDP do not reflect net benefits to society
(ex: Exxon oil spill)
4. Gov spending valued at cost, even though people might think its a
waste etc.
5. GDP does not account for nonrenewable resources
6. Hard to compare cross-country.
◉ What is the formula to calculate real GDP?
Answer: Nominal GDP/GDP deflator (P)
,◉ What is inflation?
Answer: Persistent rise in the general price level.
◉ How is the consumer price index (CPI) calculated?
Answer: Current cost of bundle/Base year cost of bundle x 100
◉ What does the CPI reflect?
Answer: Growth in prices of consumer goods and services.
◉ Why does the CPI have a high profile?
Answer: Main measure of inflation.
◉ What are two main problems with CPI?
Answer: 1. Changes in relative prices (changes in prices of bundles,
overestimate and underestimate)
2. Quality changes (improvements in quality vs. rise in price,
purchasing power of dollar for certain items ex: computer)
◉ What is the labor force?
Answer: People that want a job.
◉ What is the formula for unemployment?
, Answer: Unemployed/Labor force
◉ How can workers become discouraged? Why is this bad for the
measure of the unemployment rate?
Answer: People looking for work have looked for so long that they
become convinced there is no job out there for them.
They aren't part of the labor force anymore, unemployment drops,
causing an underestimation
◉ How can workers become encouraged? Why is this bad for the
measure of the unemployment rate?
Answer: When economy recovers from a recession, or workers
notice others getting jobs, discouraged workers become encouraged.
They suddenly become unemployed, causing rise in unemployment.
◉ What is the participation rate?
Answer: Labor force / Adult population
◉ What is frictional unemployment?
Answer: Unemployment corresponding to the ongoing process of
improving the occupational and geographical match of workers and
jobs.
◉ Why is zero unemployment unrealistic? (3)
