ECON 103 UPDATED EXAM SCRIPT TIPS
QUESTIONS AND ANSWERS SURE A+
✔✔Consumer Price Index (CPI) - ✔✔A measure that examines the weighted average of
prices of a basket of consumer goods and services, used to assess price changes
associated with the cost of living.
✔✔Producer Price Index (PPI) - ✔✔An index that measures the average change over
time in the selling prices received by domestic producers for their output.
✔✔3 Problems with CPI Measurement - ✔✔1. Substitution bias: Consumers may
change their purchasing habits when prices change. 2. Quality adjustment: Changes in
product quality may not be accurately reflected in price changes. 3. New product bias:
New products may not be included in the index immediately, missing their impact on
consumer spending.
✔✔Indexation - ✔✔The adjustment of income payments or the value of assets to
maintain purchasing power in response to inflation.
✔✔Nominal Interest Rate - ✔✔The interest rate before adjustment for inflation,
representing the percentage increase in money that the borrower pays to the lender.
, ✔✔Real Interest Rate - ✔✔The interest rate that has been adjusted for inflation,
reflecting the true cost of borrowing and the real yield to lenders.
✔✔Fisher Equation - ✔✔An equation that describes the relationship between nominal
interest rates, real interest rates, and the rate of inflation: (1 + nominal rate) = (1 + real
rate) × (1 + inflation rate).
✔✔What is productivity? - ✔✔Productivity is the measure of the efficiency of production,
typically expressed as the ratio of output to input in the production process.
✔✔What are the 4 factors that directly determine productivity? - ✔✔The four factors that
directly determine productivity are human capital, capital, physical capital, and land.
✔✔What is human capital? - ✔✔Human capital refers to the skills, knowledge, and
experience possessed by individuals, which can enhance their productivity and
economic value.
✔✔What is capital in the context of productivity? - ✔✔Capital refers to financial
resources or assets that can be used to produce goods and services, contributing to
productivity.
✔✔What is physical capital? - ✔✔Physical capital includes tangible assets such as
machinery, buildings, and equipment that are used in the production of goods and
services.
✔✔What is land in the context of productivity? - ✔✔Land refers to natural resources and
physical space used for production, including agricultural land, minerals, and water.
✔✔What are the 2 types of technological knowledge? - ✔✔The two types of
technological knowledge are common knowledge, which is widely accessible and
shared, and proprietary knowledge, which is owned and restricted to specific entities.
✔✔What is common knowledge? - ✔✔Common knowledge refers to information and
skills that are widely known and available to the general public, facilitating innovation
and productivity.
✔✔What is proprietary knowledge? - ✔✔Proprietary knowledge is specialized
information or expertise that is owned by an individual or organization and not shared
with others, often providing a competitive advantage.
✔✔What is the largest driver of productivity and economic growth historically? - ✔✔The
largest driver of productivity and economic growth historically has been technological
advancement, which enhances efficiency and creates new opportunities for production.
QUESTIONS AND ANSWERS SURE A+
✔✔Consumer Price Index (CPI) - ✔✔A measure that examines the weighted average of
prices of a basket of consumer goods and services, used to assess price changes
associated with the cost of living.
✔✔Producer Price Index (PPI) - ✔✔An index that measures the average change over
time in the selling prices received by domestic producers for their output.
✔✔3 Problems with CPI Measurement - ✔✔1. Substitution bias: Consumers may
change their purchasing habits when prices change. 2. Quality adjustment: Changes in
product quality may not be accurately reflected in price changes. 3. New product bias:
New products may not be included in the index immediately, missing their impact on
consumer spending.
✔✔Indexation - ✔✔The adjustment of income payments or the value of assets to
maintain purchasing power in response to inflation.
✔✔Nominal Interest Rate - ✔✔The interest rate before adjustment for inflation,
representing the percentage increase in money that the borrower pays to the lender.
, ✔✔Real Interest Rate - ✔✔The interest rate that has been adjusted for inflation,
reflecting the true cost of borrowing and the real yield to lenders.
✔✔Fisher Equation - ✔✔An equation that describes the relationship between nominal
interest rates, real interest rates, and the rate of inflation: (1 + nominal rate) = (1 + real
rate) × (1 + inflation rate).
✔✔What is productivity? - ✔✔Productivity is the measure of the efficiency of production,
typically expressed as the ratio of output to input in the production process.
✔✔What are the 4 factors that directly determine productivity? - ✔✔The four factors that
directly determine productivity are human capital, capital, physical capital, and land.
✔✔What is human capital? - ✔✔Human capital refers to the skills, knowledge, and
experience possessed by individuals, which can enhance their productivity and
economic value.
✔✔What is capital in the context of productivity? - ✔✔Capital refers to financial
resources or assets that can be used to produce goods and services, contributing to
productivity.
✔✔What is physical capital? - ✔✔Physical capital includes tangible assets such as
machinery, buildings, and equipment that are used in the production of goods and
services.
✔✔What is land in the context of productivity? - ✔✔Land refers to natural resources and
physical space used for production, including agricultural land, minerals, and water.
✔✔What are the 2 types of technological knowledge? - ✔✔The two types of
technological knowledge are common knowledge, which is widely accessible and
shared, and proprietary knowledge, which is owned and restricted to specific entities.
✔✔What is common knowledge? - ✔✔Common knowledge refers to information and
skills that are widely known and available to the general public, facilitating innovation
and productivity.
✔✔What is proprietary knowledge? - ✔✔Proprietary knowledge is specialized
information or expertise that is owned by an individual or organization and not shared
with others, often providing a competitive advantage.
✔✔What is the largest driver of productivity and economic growth historically? - ✔✔The
largest driver of productivity and economic growth historically has been technological
advancement, which enhances efficiency and creates new opportunities for production.
