ECON 110 ALL ANSWERS AND QUESTIONS SET A+
✔✔What is the effect on aggregate income on the demand for money? - ✔✔
✔✔What is the national debt? What are its causes? What are the alternative policies? -
✔✔
✔✔What policies promote growth? - ✔✔
✔✔What are the problems with the government's UE measures? - ✔✔
✔✔In what sense is it possible to employ "too much" labor? - ✔✔
✔✔What determines a companies potential real output? - ✔✔
✔✔What determines changes in an economy's potential real output? - ✔✔
✔✔What factors determine an economy's growth rate? - ✔✔
✔✔What is the basic macroeconomic model? - ✔✔
✔✔ What is the Price Level? - ✔✔The average level of prices of goods and services in
the economy.
✔✔What is inflation and how is it measured? - ✔✔An increase in the price level,
decrease in power of money and is measured by the percent change in the price level.
✔✔What is deflation and how is it measured? - ✔✔A decrease in the price level, that is,
a general decrease in the average of all prices.
✔✔What is disinflation and how is it measured? - ✔✔This occurs when the rate of
inflation declines.
, ✔✔How is a price index created? - ✔✔You start with an initial base period for prices
then gather the different prices of those same items over time
✔✔What are some problems with the CPI as a measure of the price level? - ✔✔It does
not accurately reflect what happens to the price of any particular good.
✔✔What is real output and how is it measured? - ✔✔The actual amount an economy
produces and it is measured by the GDP.
✔✔How is real GDP measured? - ✔✔In dollars and in relation to aggregate or total
output.
✔✔What are some problems with real GDP as a measure of real output? - ✔✔1). It may
change because of price changes even if the rate of production doesn't change in an
economy
2). Only measures activities in markets, ignoring non-markets or illegal market
transactions
3). Does not include the value of leisure
4). Does not include financial and second-hand transactions
5). Does not include intermediate goods
6). Does not account for the size of a population nor do changes account for population
growth
7). Not a measure of individual well-being
✔✔What is potential real output? - ✔✔If all the products that an economy can produced
are employed fully and efficiently, then it is the maximum amount of goods an economy
can produced.
✔✔What determines changes in potential real output? - ✔✔Changes in resources,
advances in technology, advances in labor etc...
✔✔What is the role of the labor market in determining potential real output? - ✔✔The
labor market is a measure of how many people are working or looking for work. So if all
of those people had jobs then that would be the potential real output.
✔✔what is real wage? - ✔✔Real wage= (nominal wage)/(price level) --> how much your
wage is actually worth in the economy, takes inflation, deflation, and disinflation into
account.
✔✔What is the difference between nominal or money wages vs. real wages? -
✔✔nominal wages are measured in terms of money and not their buying power like real
wages
✔✔What is the effect on aggregate income on the demand for money? - ✔✔
✔✔What is the national debt? What are its causes? What are the alternative policies? -
✔✔
✔✔What policies promote growth? - ✔✔
✔✔What are the problems with the government's UE measures? - ✔✔
✔✔In what sense is it possible to employ "too much" labor? - ✔✔
✔✔What determines a companies potential real output? - ✔✔
✔✔What determines changes in an economy's potential real output? - ✔✔
✔✔What factors determine an economy's growth rate? - ✔✔
✔✔What is the basic macroeconomic model? - ✔✔
✔✔ What is the Price Level? - ✔✔The average level of prices of goods and services in
the economy.
✔✔What is inflation and how is it measured? - ✔✔An increase in the price level,
decrease in power of money and is measured by the percent change in the price level.
✔✔What is deflation and how is it measured? - ✔✔A decrease in the price level, that is,
a general decrease in the average of all prices.
✔✔What is disinflation and how is it measured? - ✔✔This occurs when the rate of
inflation declines.
, ✔✔How is a price index created? - ✔✔You start with an initial base period for prices
then gather the different prices of those same items over time
✔✔What are some problems with the CPI as a measure of the price level? - ✔✔It does
not accurately reflect what happens to the price of any particular good.
✔✔What is real output and how is it measured? - ✔✔The actual amount an economy
produces and it is measured by the GDP.
✔✔How is real GDP measured? - ✔✔In dollars and in relation to aggregate or total
output.
✔✔What are some problems with real GDP as a measure of real output? - ✔✔1). It may
change because of price changes even if the rate of production doesn't change in an
economy
2). Only measures activities in markets, ignoring non-markets or illegal market
transactions
3). Does not include the value of leisure
4). Does not include financial and second-hand transactions
5). Does not include intermediate goods
6). Does not account for the size of a population nor do changes account for population
growth
7). Not a measure of individual well-being
✔✔What is potential real output? - ✔✔If all the products that an economy can produced
are employed fully and efficiently, then it is the maximum amount of goods an economy
can produced.
✔✔What determines changes in potential real output? - ✔✔Changes in resources,
advances in technology, advances in labor etc...
✔✔What is the role of the labor market in determining potential real output? - ✔✔The
labor market is a measure of how many people are working or looking for work. So if all
of those people had jobs then that would be the potential real output.
✔✔what is real wage? - ✔✔Real wage= (nominal wage)/(price level) --> how much your
wage is actually worth in the economy, takes inflation, deflation, and disinflation into
account.
✔✔What is the difference between nominal or money wages vs. real wages? -
✔✔nominal wages are measured in terms of money and not their buying power like real
wages
