ECO 212 Test#1 Questions and Answers
Effect of Minimum Wage on Unemployment - Answer-Minimum Wage is positively correlated with
unemployment. (Higher minimum wage, less employment)
Effect of Price Controls on Welfare - Answer-
Subsidy - Answer-A benefit or grant that is given to a specific industry to assist them.
Ways to measure aggregate economic activity in a country (3) - Answer--The Production Approach
-The Expenditure Approach
-The Income Approach
What are all of these approaches used to measure? - Answer-Gross Domestic Product (GDP)
Gross Demestic Product (GDP) - Answer-The market value of the final goods and services produced
within the borders of a country during a particular time period.
Production Approach - Answer-Production-based accounting sums up each firm's value added, which is
the firm's sale revenue minus the firm's purchases of intermediate products from other firms.
, Expenditure Approach - Answer-Sums up the purchases of goods and services by different groups of
categories.
1) Consumption goods (C)
2) New physical capital (investment) bought by domestic households and domestic firms. (I)
3) Government expenditures on goods and services (G)
4) Exports of goods and services produced domestically and sold abroad (X)
5) Imports of goods and services produced abroad and sold domestically (M)
Income Approach - Answer-Sums up payments (or income) received by labor and the owners of physical
or financial capital.
Aggregate Accounting Identity - Answer-Y = GDP(Prod.) = GDP(Exp.) = GDP(Income)
National Income Accounting Identity - Answer-Y = C + I + G + X - M
Exports(X) - Imports(M) = ? - Answer-In many economies it is very close to 0 *(exactly 0 in a closed
economy)*
What isn't measured by GDP? - Answer-- Physical capital depreciation
- Home production of cleaning, cooking, and child care done in the household.
- Transactions conducted in the underground economy.
- Does not count negative externalities such as pollution, noise, and crime.
- Leisure
- Production by U.S. workers and U.S. capital abroad
Effect of Minimum Wage on Unemployment - Answer-Minimum Wage is positively correlated with
unemployment. (Higher minimum wage, less employment)
Effect of Price Controls on Welfare - Answer-
Subsidy - Answer-A benefit or grant that is given to a specific industry to assist them.
Ways to measure aggregate economic activity in a country (3) - Answer--The Production Approach
-The Expenditure Approach
-The Income Approach
What are all of these approaches used to measure? - Answer-Gross Domestic Product (GDP)
Gross Demestic Product (GDP) - Answer-The market value of the final goods and services produced
within the borders of a country during a particular time period.
Production Approach - Answer-Production-based accounting sums up each firm's value added, which is
the firm's sale revenue minus the firm's purchases of intermediate products from other firms.
, Expenditure Approach - Answer-Sums up the purchases of goods and services by different groups of
categories.
1) Consumption goods (C)
2) New physical capital (investment) bought by domestic households and domestic firms. (I)
3) Government expenditures on goods and services (G)
4) Exports of goods and services produced domestically and sold abroad (X)
5) Imports of goods and services produced abroad and sold domestically (M)
Income Approach - Answer-Sums up payments (or income) received by labor and the owners of physical
or financial capital.
Aggregate Accounting Identity - Answer-Y = GDP(Prod.) = GDP(Exp.) = GDP(Income)
National Income Accounting Identity - Answer-Y = C + I + G + X - M
Exports(X) - Imports(M) = ? - Answer-In many economies it is very close to 0 *(exactly 0 in a closed
economy)*
What isn't measured by GDP? - Answer-- Physical capital depreciation
- Home production of cleaning, cooking, and child care done in the household.
- Transactions conducted in the underground economy.
- Does not count negative externalities such as pollution, noise, and crime.
- Leisure
- Production by U.S. workers and U.S. capital abroad
