BYU ECON 110 QUESTIONS AND
CORRECT ANSWERS
How is a price index created? ✅✅CORRECT ANSW-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? ✅✅CORRECT ANSW-It
does not accurately reflect what happens to the price of any particular good.
What is real output and how is it measured? ✅✅CORRECT ANSW-The actual amount an economy
produces and it is measured by the GDP.
How is real GDP measured? ✅✅CORRECT ANSW-In dollars and in relation to aggregate or total
output.
What is the Price Level? ✅✅CORRECT ANSW-The average level of prices of goods and services in
the economy.
What is inflation and how is it measured? ✅✅CORRECT ANSW-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? ✅✅CORRECT ANSW-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? ✅✅CORRECT ANSW-This occurs when the rate of
inflation declines.
What are some problems with real GDP as a measure of real output? ✅✅CORRECT ANSW-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? ✅✅CORRECT ANSW-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? ✅✅CORRECT ANSW-Changes in resources,
advances in technology, advances in labor etc...
What is the role of the labor market in determining potential real output? ✅✅CORRECT ANSW-
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? ✅✅CORRECT ANSW-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? ✅✅CORRECT ANSW-
nominal wages are measured in terms of money and not their buying power like real wages
What is unemployment and how is it measured? ✅✅CORRECT ANSW-A person that is apart of the
labor force (so looking for a job), but out of work. It is measured by the unemployment rate.
What is frictional unemployment? ✅✅CORRECT ANSW-the time period between jobs when a
worker is searching for, or transitioning from one job to another.
What is cyclical unemployment? ✅✅CORRECT ANSW-as the result of businesses not having
enough demand for labor to employ all those who are looking for work.
What is structural unemployment? ✅✅CORRECT ANSW-When people do not have the necessary
skills to fill available job openings.
What is the labor force? ✅✅CORRECT ANSW-all people employed or actively seeking
employment
CORRECT ANSWERS
How is a price index created? ✅✅CORRECT ANSW-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? ✅✅CORRECT ANSW-It
does not accurately reflect what happens to the price of any particular good.
What is real output and how is it measured? ✅✅CORRECT ANSW-The actual amount an economy
produces and it is measured by the GDP.
How is real GDP measured? ✅✅CORRECT ANSW-In dollars and in relation to aggregate or total
output.
What is the Price Level? ✅✅CORRECT ANSW-The average level of prices of goods and services in
the economy.
What is inflation and how is it measured? ✅✅CORRECT ANSW-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? ✅✅CORRECT ANSW-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? ✅✅CORRECT ANSW-This occurs when the rate of
inflation declines.
What are some problems with real GDP as a measure of real output? ✅✅CORRECT ANSW-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? ✅✅CORRECT ANSW-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? ✅✅CORRECT ANSW-Changes in resources,
advances in technology, advances in labor etc...
What is the role of the labor market in determining potential real output? ✅✅CORRECT ANSW-
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? ✅✅CORRECT ANSW-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? ✅✅CORRECT ANSW-
nominal wages are measured in terms of money and not their buying power like real wages
What is unemployment and how is it measured? ✅✅CORRECT ANSW-A person that is apart of the
labor force (so looking for a job), but out of work. It is measured by the unemployment rate.
What is frictional unemployment? ✅✅CORRECT ANSW-the time period between jobs when a
worker is searching for, or transitioning from one job to another.
What is cyclical unemployment? ✅✅CORRECT ANSW-as the result of businesses not having
enough demand for labor to employ all those who are looking for work.
What is structural unemployment? ✅✅CORRECT ANSW-When people do not have the necessary
skills to fill available job openings.
What is the labor force? ✅✅CORRECT ANSW-all people employed or actively seeking
employment
