Intro to Macroeconomics Midterm 1(Correct answers)
GDP (Gross Domestic Product) And what does it help to measure? correct answers The market
value of all final goods and services produced within a nation during a specific period of time
(usually a year). It is the primary measure to gauge a nation's output AND income.
Three Uses of GDP data correct answers 1) To measure living standards (GDP/# of people)
2) To measure economic growth (changes in living standards)
3) To determine economic expansions and contractions (recessions)/ Business Cycles
Per Capita GDP correct answers GDP per person:
Country's total GDP/Country's population
Inflation correct answers Growth in the overall levels of prices in an economy
Real GDP correct answers GDP adjusted for changes in prices: Nominal GDP - Inflation Rate
Recession correct answers Short-term economic downturns that typically last about 6-18 months
Business Cycles
(definitions of economic expansion and economic contraction) correct answers Short-run
fluctuations in economic activity.
economic expansion: from the bottom of a trough to the next peak, when the economy is
growing faster than usual, jobs easy to find and income levels rise
economic contraction: from peak to trough, when the economy is growing at a slower rate than
usual, more people lose their jobs and often income levels fall
How to calculate market value correct answers quantity of a good in an industry X price of each
unit of the good
Services correct answers outputs that provide benefits without the production of a tangible
product
Intermediate Goods correct answers goods that firms repackage or bundle with other goods for
sale at a later stage
Final goods correct answers goods sold to final users
Gross National Product (GNP) correct answers The output produced by workers and resources
owned by residents of the nation (includes jobs that are outsourced by Americans to other
countries)
What counts in GDP (and what doesn't count) correct answers Doesn't count: Items that are
being resold (like a used car), financial assets (stocks and bonds), and intermediate goods
Counts:
Consumption--> purchasing of final goods and services by households, excluding new housing
, Investment --> Private spending on tools, plant and equipment used to produce future output,
also all purchases by a business that adds to its inventories
Government Spending -->Spending by all levels of government on final goods and services
Net exports --> Exports - imports of financial goods and services
C + I + G + NX = Y (real GDP)
Durable vs. Non-durable goods correct answers Non-durable: consumed for a short period
Durable: consumed for a long period (more expensive = more susceptible to cyclical fluctuations
in the economy)
TWO ROTUNDA PRINCIPLES correct answers 1) Trade creates value
2) Incentives affect behavior
Nominal GDP correct answers GDP calculated from current prices without accounting for
inflation
GDP deflator correct answers A measure of the price level that includes prices of the final goods
and services included in GDP
Price level correct answers An index of the average prices of goods and services throughout the
economy
How to calculate real GDP correct answers 1) filter out the current prices from the nominal GDP
data
Nominal GDP/ Price Level from the period in which the GDP was produced
2)Put in the constant prices from the base period (most often 100)
Real GDP= nominal/price level x 100
How to calculate growth of GDP correct answers % change in GDP
New GDP - Old GDP/ Old GDP x 100 = % change in GDP
How to calculate price level growth rate correct answers New price level - old/old x 100
The growth rate of nominal GDP (% change in GDP) is approximately equal to... correct answers
growth of real GDP (% change in real GDP) + Growth of price level (% change in price level)
Four shortcomings of GDP (What is not included in GDP) correct answers 1) Non-Market
Production: output that is not traded in a official market; Goods that are produced but not sold
(cleaning the house, volunteer work)
2) Underground activity/ Black Market (tipping waiters, prostitution, drug trade)
3) Environmental Impacts: GDP doesn't distinguish how goods are produced (pollution causes
health problems for its citizens, which would lower their quality of life)
4)Leisure Time: GDP fails to capture how long laborers work to produce goods and services.
(Some countries work more hours than others)
B.L.E.N.
GDP (Gross Domestic Product) And what does it help to measure? correct answers The market
value of all final goods and services produced within a nation during a specific period of time
(usually a year). It is the primary measure to gauge a nation's output AND income.
Three Uses of GDP data correct answers 1) To measure living standards (GDP/# of people)
2) To measure economic growth (changes in living standards)
3) To determine economic expansions and contractions (recessions)/ Business Cycles
Per Capita GDP correct answers GDP per person:
Country's total GDP/Country's population
Inflation correct answers Growth in the overall levels of prices in an economy
Real GDP correct answers GDP adjusted for changes in prices: Nominal GDP - Inflation Rate
Recession correct answers Short-term economic downturns that typically last about 6-18 months
Business Cycles
(definitions of economic expansion and economic contraction) correct answers Short-run
fluctuations in economic activity.
economic expansion: from the bottom of a trough to the next peak, when the economy is
growing faster than usual, jobs easy to find and income levels rise
economic contraction: from peak to trough, when the economy is growing at a slower rate than
usual, more people lose their jobs and often income levels fall
How to calculate market value correct answers quantity of a good in an industry X price of each
unit of the good
Services correct answers outputs that provide benefits without the production of a tangible
product
Intermediate Goods correct answers goods that firms repackage or bundle with other goods for
sale at a later stage
Final goods correct answers goods sold to final users
Gross National Product (GNP) correct answers The output produced by workers and resources
owned by residents of the nation (includes jobs that are outsourced by Americans to other
countries)
What counts in GDP (and what doesn't count) correct answers Doesn't count: Items that are
being resold (like a used car), financial assets (stocks and bonds), and intermediate goods
Counts:
Consumption--> purchasing of final goods and services by households, excluding new housing
, Investment --> Private spending on tools, plant and equipment used to produce future output,
also all purchases by a business that adds to its inventories
Government Spending -->Spending by all levels of government on final goods and services
Net exports --> Exports - imports of financial goods and services
C + I + G + NX = Y (real GDP)
Durable vs. Non-durable goods correct answers Non-durable: consumed for a short period
Durable: consumed for a long period (more expensive = more susceptible to cyclical fluctuations
in the economy)
TWO ROTUNDA PRINCIPLES correct answers 1) Trade creates value
2) Incentives affect behavior
Nominal GDP correct answers GDP calculated from current prices without accounting for
inflation
GDP deflator correct answers A measure of the price level that includes prices of the final goods
and services included in GDP
Price level correct answers An index of the average prices of goods and services throughout the
economy
How to calculate real GDP correct answers 1) filter out the current prices from the nominal GDP
data
Nominal GDP/ Price Level from the period in which the GDP was produced
2)Put in the constant prices from the base period (most often 100)
Real GDP= nominal/price level x 100
How to calculate growth of GDP correct answers % change in GDP
New GDP - Old GDP/ Old GDP x 100 = % change in GDP
How to calculate price level growth rate correct answers New price level - old/old x 100
The growth rate of nominal GDP (% change in GDP) is approximately equal to... correct answers
growth of real GDP (% change in real GDP) + Growth of price level (% change in price level)
Four shortcomings of GDP (What is not included in GDP) correct answers 1) Non-Market
Production: output that is not traded in a official market; Goods that are produced but not sold
(cleaning the house, volunteer work)
2) Underground activity/ Black Market (tipping waiters, prostitution, drug trade)
3) Environmental Impacts: GDP doesn't distinguish how goods are produced (pollution causes
health problems for its citizens, which would lower their quality of life)
4)Leisure Time: GDP fails to capture how long laborers work to produce goods and services.
(Some countries work more hours than others)
B.L.E.N.
