Econ 104 Final – Goffe exam Q’s and A’s
Nominal GDP - -the value of final goods and services evaluated at current-year prices
-How to calculate nominal GDP - -C + I + G +NX
-Real GDP - -The value of final goods and services evaluated at base-year prices
-How to calculate real GDP - -P*Q for every good in GDP and add them all together
BASE YEAR
2014 - 100M visits at $50 each 2015 - 103M visits at $53
10M cars at $20,000 each 11M cars at $20,500 each
real GDP for 2015: (103M * $50 + 11M * 20,000)
2015Q(1) * 2014P(1) + 2015Q(2) * 2014 P(2)
-Monetary Policy - -federal reserve's dual mandate (which focuses on max employment,
stable prices, and moderate long-term interest rates)
-What will result from the Fed increasing the federal rate? - -Costs for banks will increase
and loan rates for consumers and firms will increase. This leads to slower growth.
-Fiscal Policy - -Controlled by the president and congress. It is the government budget.
-GDP Deflator - -uses nominal and real GDP to measure the price level (not in dollars)
-Price level - -The average price of all goods and services in an economy
-How to calculate GDP deflator - -(Nominal/Real)*100
-CPI - -used to correct nominal prices and wages over time for the impact of inflation using
market basket prices
-How to calculate CPI - -(market base price in current year/ market basket price in base
year)*100
-Limitations of GDP - -1. Doesn't account for change in quality.
2. Doesn't account for underground economy.
3. Doesn't account for 'bads' of economy
4. Doesn't account for non-market production
-Limitations of CPI - -Substitution bias, increase in quality bias, new product bias, outlet
bias.
-Core Inflation - -ignores food/energy, as they can be more volatile
, -Headline inflation - -takes food and energy in to account when calculating
-Real prices - -what would have been paid for the same good or service in the base year
based on inflation
-Real wages - -wages based on the base year
-Inflation rate (Calculation) - -(CPI this year - CPI last year)/ CPI last year
-Real interest rate (calculation) - -nominal interest rate - inflation rate
-Real interest rate - -provides a better measure of the true cost of borrowing and the true
rate of return of lending than nominal interest rates
-Money - -1. Medium of exchange
2. Store of value
3. Unit of account
4. Standard of deferred payment
-Current Nominal GDP - -$18 trillion
-Current Real GDP - -$16.4 trillion
-Current GDP deflator - -110
-Anticipated inflation - -value of money declines and menu costs need to change
-Unanticipated inflation - -reduces real wages and real interest rates
-Business Cycle - -alternating periods of economic expansion and economic recession
-Consumption - -spending by households on goods and services, not including spending on
new houses
-Economic growth - -the ability of an economy to produce increasing quantities of goods
and services
-Expansion - -the period of a business cycle during which total production and total
employment are increasing
-Final good or service - -a good or service purchased by a final user
-Government purchases - -spending by federal, state, and local governments on goods and
services
Nominal GDP - -the value of final goods and services evaluated at current-year prices
-How to calculate nominal GDP - -C + I + G +NX
-Real GDP - -The value of final goods and services evaluated at base-year prices
-How to calculate real GDP - -P*Q for every good in GDP and add them all together
BASE YEAR
2014 - 100M visits at $50 each 2015 - 103M visits at $53
10M cars at $20,000 each 11M cars at $20,500 each
real GDP for 2015: (103M * $50 + 11M * 20,000)
2015Q(1) * 2014P(1) + 2015Q(2) * 2014 P(2)
-Monetary Policy - -federal reserve's dual mandate (which focuses on max employment,
stable prices, and moderate long-term interest rates)
-What will result from the Fed increasing the federal rate? - -Costs for banks will increase
and loan rates for consumers and firms will increase. This leads to slower growth.
-Fiscal Policy - -Controlled by the president and congress. It is the government budget.
-GDP Deflator - -uses nominal and real GDP to measure the price level (not in dollars)
-Price level - -The average price of all goods and services in an economy
-How to calculate GDP deflator - -(Nominal/Real)*100
-CPI - -used to correct nominal prices and wages over time for the impact of inflation using
market basket prices
-How to calculate CPI - -(market base price in current year/ market basket price in base
year)*100
-Limitations of GDP - -1. Doesn't account for change in quality.
2. Doesn't account for underground economy.
3. Doesn't account for 'bads' of economy
4. Doesn't account for non-market production
-Limitations of CPI - -Substitution bias, increase in quality bias, new product bias, outlet
bias.
-Core Inflation - -ignores food/energy, as they can be more volatile
, -Headline inflation - -takes food and energy in to account when calculating
-Real prices - -what would have been paid for the same good or service in the base year
based on inflation
-Real wages - -wages based on the base year
-Inflation rate (Calculation) - -(CPI this year - CPI last year)/ CPI last year
-Real interest rate (calculation) - -nominal interest rate - inflation rate
-Real interest rate - -provides a better measure of the true cost of borrowing and the true
rate of return of lending than nominal interest rates
-Money - -1. Medium of exchange
2. Store of value
3. Unit of account
4. Standard of deferred payment
-Current Nominal GDP - -$18 trillion
-Current Real GDP - -$16.4 trillion
-Current GDP deflator - -110
-Anticipated inflation - -value of money declines and menu costs need to change
-Unanticipated inflation - -reduces real wages and real interest rates
-Business Cycle - -alternating periods of economic expansion and economic recession
-Consumption - -spending by households on goods and services, not including spending on
new houses
-Economic growth - -the ability of an economy to produce increasing quantities of goods
and services
-Expansion - -the period of a business cycle during which total production and total
employment are increasing
-Final good or service - -a good or service purchased by a final user
-Government purchases - -spending by federal, state, and local governments on goods and
services
