EC 302 MIDTERM 1 EXAM QUESTIONS ANSWERED CORRECTLY LATEST UPDATE 2026
Economic indicators of macroperformance - Answers GDP
Inflation
Interest Rates
Employment/Unemployment
Productivity
3 equivalent measures of economic activity - Answers 1. output produced
2. spending by the purchasers of output
3. incomes received by producers
National income accounting identity - Answers Production = Spending = Income
real GDP - Answers market value of a country's total output of new final goods and services during a
given period of time
Nominal GDP - Answers output in a given year measured at the prices prevailing that year
Intermediate goods and GDP - Answers intermediate goods are not calculated into GDP
When calculating real GDP - Answers use the price from the base year to account for inflation
GNP - Answers output produced by domestic factors of production,
ex. income of US worker working in Germany is included in GNP NOT GDP
GDP and GNP relationship equation - Answers GDP = GNP-NFP
NFP : net factor payments from rest of the world
GDP product approach - Answers uses the "value added" concept
value added = revenue - cost
You compute GDP by summing value added by all producers
GDP Expenditure Approach - Answers Uses expenditure categories:
Y = C + I + G + NX
C = consumer durables, non durable goods, services
I = Spending for new capital goods, including inventory holdings (fixed and residential investment)
G = gov purchases of good and services NOT including transfers (payments made by govt NOT in
exchange for goods and services)
NX = exports - imports
GDP Income Approach - Answers uses income received by economic entities
GDP income approach - net government income - Answers Net Govt Income = T - TR - INT
T = taxes
TR = transfers received by govt
INT = interest on govt debt
GDP income approach - private disposable income - Answers private disp income = Y + NFP + TR + INT
-T
Y= GDP
NFP= net factor payments
TR= transfers received by gvt
INT = interest on gvt debt
T = taxes
wealth - Answers wealth = value of assets - value of liabilities
saving - Answers saving = current income - current spending
saving rate - Answers saving/income
3 measures of saving - Answers 1. private saving
2. gov saving
3. national saving
private saving - Answers = private disposable income - consumption
, Spvt = (Y + NFP - T + TR +INT) - C
government saving - Answers = net gov income - gov purchases
Sgvt = (T - TR - INT) - G
national saving - Answers = private saving + gov saving
Snat = Y + NFP - C - G
Inflation rate - Answers percentage rate of change in the general price level from one period to the
next
price level - Answers average of the prices of an economy's goods and services
3 measures of the price level - Answers 1. Consumer price index - CPI
2. Producer price index - PPI
3. Deflators
expected rate of inflation - Answers inf = (new-old)/(old) x 100
nominal GDP - Answers price level x real GDP
real GDP - Answers (price level x real GDP)/price level
CPI - Answers consumer price index, a ratio that shows the price of a fixed list of goods now relative
to the price in a given base year
(core CPI doesn't include food or energy)
Price level equation - Answers (Nominal GDP/Real GDP) x 100
PPI - Answers producer price index, a ratio measuring prices charged by producers at various stages
of the production process
GDP deflator - Answers measures the average price of all final goods and services that are included in
GDP
= (nominal GDP/real GDP)x100
Interest rate - Answers a rate of return promised by a borrower to a lender
nominal interest rate - Answers the interest rate as usually reported without a correction for the
effects of inflation
real interest rate - Answers the interest rate corrected for the effects of inflation
expected real interest rate - Answers = (nominal interest rate) - (expected inflation rate)
What does GDP depend on - Answers - technology
- inputs (labor, capital, natural resources)
- productivity
The production function - Answers a math expression relating output produced to quantities of
capital and labor for a given technology
Y = AF(K,N)
Y= real output/GDP
A = total factor productivity
F = function relating to Y,K,N
K = capital used
N = labor used
The production function relating output and capital - Answers look at notes for graph
upward sloping in K, flattens as K increases
slope : marginal product of capital
MPK is positive and decreasing
The production function relating output and labor - Answers look at notes for graph
upward sloping in N, flattens as N increases
slope: marginal product of labor
MPN is positive and decreasing
Supply shock - Answers productivity shock, changes in the production function
affects supply side of economy
Economic indicators of macroperformance - Answers GDP
Inflation
Interest Rates
Employment/Unemployment
Productivity
3 equivalent measures of economic activity - Answers 1. output produced
2. spending by the purchasers of output
3. incomes received by producers
National income accounting identity - Answers Production = Spending = Income
real GDP - Answers market value of a country's total output of new final goods and services during a
given period of time
Nominal GDP - Answers output in a given year measured at the prices prevailing that year
Intermediate goods and GDP - Answers intermediate goods are not calculated into GDP
When calculating real GDP - Answers use the price from the base year to account for inflation
GNP - Answers output produced by domestic factors of production,
ex. income of US worker working in Germany is included in GNP NOT GDP
GDP and GNP relationship equation - Answers GDP = GNP-NFP
NFP : net factor payments from rest of the world
GDP product approach - Answers uses the "value added" concept
value added = revenue - cost
You compute GDP by summing value added by all producers
GDP Expenditure Approach - Answers Uses expenditure categories:
Y = C + I + G + NX
C = consumer durables, non durable goods, services
I = Spending for new capital goods, including inventory holdings (fixed and residential investment)
G = gov purchases of good and services NOT including transfers (payments made by govt NOT in
exchange for goods and services)
NX = exports - imports
GDP Income Approach - Answers uses income received by economic entities
GDP income approach - net government income - Answers Net Govt Income = T - TR - INT
T = taxes
TR = transfers received by govt
INT = interest on govt debt
GDP income approach - private disposable income - Answers private disp income = Y + NFP + TR + INT
-T
Y= GDP
NFP= net factor payments
TR= transfers received by gvt
INT = interest on gvt debt
T = taxes
wealth - Answers wealth = value of assets - value of liabilities
saving - Answers saving = current income - current spending
saving rate - Answers saving/income
3 measures of saving - Answers 1. private saving
2. gov saving
3. national saving
private saving - Answers = private disposable income - consumption
, Spvt = (Y + NFP - T + TR +INT) - C
government saving - Answers = net gov income - gov purchases
Sgvt = (T - TR - INT) - G
national saving - Answers = private saving + gov saving
Snat = Y + NFP - C - G
Inflation rate - Answers percentage rate of change in the general price level from one period to the
next
price level - Answers average of the prices of an economy's goods and services
3 measures of the price level - Answers 1. Consumer price index - CPI
2. Producer price index - PPI
3. Deflators
expected rate of inflation - Answers inf = (new-old)/(old) x 100
nominal GDP - Answers price level x real GDP
real GDP - Answers (price level x real GDP)/price level
CPI - Answers consumer price index, a ratio that shows the price of a fixed list of goods now relative
to the price in a given base year
(core CPI doesn't include food or energy)
Price level equation - Answers (Nominal GDP/Real GDP) x 100
PPI - Answers producer price index, a ratio measuring prices charged by producers at various stages
of the production process
GDP deflator - Answers measures the average price of all final goods and services that are included in
GDP
= (nominal GDP/real GDP)x100
Interest rate - Answers a rate of return promised by a borrower to a lender
nominal interest rate - Answers the interest rate as usually reported without a correction for the
effects of inflation
real interest rate - Answers the interest rate corrected for the effects of inflation
expected real interest rate - Answers = (nominal interest rate) - (expected inflation rate)
What does GDP depend on - Answers - technology
- inputs (labor, capital, natural resources)
- productivity
The production function - Answers a math expression relating output produced to quantities of
capital and labor for a given technology
Y = AF(K,N)
Y= real output/GDP
A = total factor productivity
F = function relating to Y,K,N
K = capital used
N = labor used
The production function relating output and capital - Answers look at notes for graph
upward sloping in K, flattens as K increases
slope : marginal product of capital
MPK is positive and decreasing
The production function relating output and labor - Answers look at notes for graph
upward sloping in N, flattens as N increases
slope: marginal product of labor
MPN is positive and decreasing
Supply shock - Answers productivity shock, changes in the production function
affects supply side of economy
