# Real vs. Nominal GDP Practice

Save this PDF as:

Size: px
Start display at page:

## Transcription

1 Name: Real vs. Nominal GDP Practice Period: Real verse Nominal Values Prices in an economy do not stay the same. Over time the price level changes (i.e., there is inflation or deflation). A change in the price level changes the value of economic measures denominated in dollars. Values that increase or decrease with price level are called nominal values. Real values are adjusted for price changes. That is, they are calculated as though prices did not change from the base year. For example, gross domestic product (GDP) is used to measure fluctuations in output. However, since GDP is the dollar value of goods and services produced in the economy, it increases when prices increase. This means that nominal GDP increases with inflation and decreases with deflation. But when GDP is used as a measure of short-run economic growth, we are interested in measuring performance real GDP takes out the effects of price changes and allows us to isolate changes in output. Price indices are used to adjust for price changes. They are used to convert nominal values into real values. Converting Nominal GDP to Real GDP To use GDP to measure output growth, it must be converted from nominal to real. Let s say nominal GDP in Year 1 is \$1,000 and in Year 2 it is \$1,100. Does this mean the economy has grown 10 percent between Year 1 and Year 2? Not necessarily. If prices have risen, part of the increase in nominal GDP for Year 2 will represent the increase in prices. GDP that has been adjusted for price changes is called real GDP. If GDP isn t adjusted for price changes, we call it nominal GDP. To compute real GDP in a given year, use the GDP Deflator. The GDP deflator for a given year is 100 times the ration of nominal GDP to real GDP in that year. The GDP deflator is a type of price index, or form of measurement, that tracks changes in the value of goods produced in a nation from one year to another. Here is the formula to find the real GDP in a given year using the GDP deflator: real GDP = nominal GDP x 100 GDP deflator If the GDP deflator is not provided, the following is the formula: GDP deflator = nominal GDP x 100 real GDP To compute real output growth in GDP from one year to another, subtract real GDP for Year 2 from real GDP from Year 1. Dived the answer (the change in real GDP from the previous year) by real GDP in GDP declines from Year 1 to Year 2, the answer will be a negative percentage.) Here s the formula: Output growth = (real GDP in Year 2 real GDP in Year 1) x 100 real GDP in Year 1 For example, if real GDP in Year 1 = \$1,000 and in Year 2 = \$1,028, then the output growth rate from Year 1 to Year 2 is 2.8%; (1,028-1,000)/1,000 =.028, which we multiply by 100 in order to express the result as a percentage. To understand the impact of output changes, we usually look at real GDP per capita. To do so, we divide the real GDP of any period by a country s average population during the same period. This procedure enables us to determine how much of the output growth of a country simply went to supply the increase in population and how much of the growth represented improvements in the standard of living of the entire population. In our example, let s say the population in Year 1 was 100 and in Year 2 it was 110. What is the real GDP per capita in Years 1 and 2?

2 Year 1 Year 2 Real GDP per capita = Year 1 real GDP = \$1,000 = \$10 Population in Year Real GDP per capita = \$1,028 = \$ In this example, real GDP per capita fell even though output growth was positive. Developing countries with positive output growth but higher rates of population growth often experience this condition. Practicing Conversions of Nominal GDP to Real GDP Use the table below to answer the questions 1-6. Nominal GDP GDP deflator Population Year 3 \$5, Year 4 \$6, What is the real GDP in Year 3? 2. What is the real GDP in Year 4? 3. What is the real GDP per capita in Year 3? 4. What is the real GDP per capita in Year 4? 5. What is the rate of real output growth between Years 3 and 4? 6. What is the rate of real output growth per capita between Years 3 and 4? (Hint: Use per capita data in the output growth rate formula.)

3 The economy of Grossmania produces three goods: Widgets, Gizmos, and Thingamajigs. The accompanying table shows the output and prices for years 2006 and (Hint: GDP, in its most basic form, is P x Q. You take the quantity of output and multiply by the price of output.) Widgets Gizmos Thingamajigs Year Price Quantity Price Quantity Price Quantity 2006 \$100 1 \$10 8 \$ \$110 1 \$12 10 \$ Calculate the nominal GDP for: a b Compute the percentage of growth in nominal GDP from 2006 to Using 2006 as the base year, calculate the real GDP for What is the GDP deflator for 2007? What was the inflation rate between 2006 and 2007? 11. Compute the real rate of output growth from 2006 to Which of the following is true of real GDP? I. It is adjusted for changes in prices. II. It is always equal to nominal GDP. III. It increases whenever aggregate output increases. a. I only b. II only c. III only d. I and III e. I, II, and III 13. The best measure for comparing a country s aggregate output over time is a. Nominal GDP. b. Real GDP. c. Nominal GDP per capita. d. Real GDP per capita. e. Average GDP per capita. For questions use the information provided in the table below for an economy that produces only apples and oranges. Assume year 1 is the base year. Quantity of Apples 3,000 4,000 Price of Apples \$0.20 \$0.30 Quantity of Oranges 2,000 3,000 Price of Oranges \$0.40 \$ What was the value of real GDP in each year? a. \$1,400 \$2,700 b. \$1,900 \$2,700 c. \$1,400 \$2,000 d. \$1,900 \$2,000 e. \$1,400 \$1, What is the GDP Deflator for Year 2? a. 105 b. 135 c. 136 d. 142 e. 143

4 Real vs. Nominal GDP Practice KEY Real verse Nominal Values Prices in an economy do not stay the same. Over time the price level changes (i.e., there is inflation or deflation). A change in the price level changes the value of economic measures denominated in dollars. Values that increase or decrease with price level are called nominal values. Real values are adjusted for price changes. That is, they are calculated as though prices did not change from the base year. For example, gross domestic product (GDP) is used to measure fluctuations in output. However, since GDP is the dollar value of goods and services produced in the economy, it increases when prices increase. This means that nominal GDP increases with inflation and decreases with deflation. But when GDP is used as a measure of short-run economic growth, we are interested in measuring performance real GDP takes out the effects of price changes and allows us to isolate changes in output. Price indices are used to adjust for price changes. They are used to convert nominal values into real values. Converting Nominal GDP to Real GDP To use GDP to measure output growth, it must be converted from nominal to real. Let s say nominal GDP in Year 1 is \$1,000 and in Year 2 it is \$1,100. Does this mean the economy has grown 10 percent between Year 1 and Year 2? Not necessarily. If prices have risen, part of the increase in nominal GDP for Year 2 will represent the increase in prices. GDP that has been adjusted for price changes is called real GDP. If GDP isn t adjusted for price changes, we call it nominal GDP. To compute real GDP in a given year, use the GDP Deflator. The GDP deflator for a given year is 100 times the ration of nominal GDP to real GDP in that year. The GDP deflator is a type of price index, or form of measurement, that tracks changes in the value of goods produced in a nation from one year to another. Here is the formula to find the real GDP in a given year using the GDP deflator: real GDP = nominal GDP x 100 GDP deflator If the GDP deflator is not provided, the following is the formula: GDP deflator = nominal GDP x 100 real GDP To compute real output growth in GDP from one year to another, subtract real GDP for Year 2 from real GDP from Year 1. Dived the answer (the change in real GDP from the previous year) by real GDP in GDP declines from Year 1 to Year 2, the answer will be a negative percentage.) Here s the formula: Output growth = (real GDP in Year 2 real GDP in Year 1) x 100 real GDP in Year 1 For example, if real GDP in Year 1 = \$1,000 and in Year 2 = \$1,028, then the output growth rate from Year 1 to Year 2 is 2.8%; (1,028-1,000)/1,000 =.028, which we multiply by 100 in order to express the result as a percentage. To understand the impact of output changes, we usually look at real GDP per capita. To do so, we divide the real GDP of any period by a country s average population during the same period. This procedure enables us to determine how much of the output growth of a country simply went to supply the increase in population and how much of the growth represented improvements in the standard of living of the entire population. In our example, let s say the population in Year 1 was 100 and in Year 2 it was 110. What is the real GDP per capita in Years 1 and 2?

5 Year 1 Real GDP per capita = Year 1 real GDP = \$1,000 = \$10 Population in Year Year 2 Real GDP per capita = \$1,028 = \$ In this example, real GDP per capita fell even though output growth was positive. Developing countries with positive output growth but higher rates of population growth often experience this condition. Practicing Conversions of Nominal GDP to Real GDP Use the table below to answer the questions 1-6. Nominal GDP GDP deflator Population Year 3 \$5, Year 4 \$6, What is the real GDP in Year 3? \$4,000 5,000 x 100 = 4, What is the real GDP in Year 4? \$4,400 6,600 x 100 = 4, What is the real GDP per capita in Year 3? \$364 4,000 = What is the real GDP per capita in Year 4? \$367 4,400 = What is the rate of real output growth between Years 3 and 4? 10% (4,400 4,000) x 100 = 10% 4, What is the rate of real output growth per capita between Years 3 and 4?.82% (Hint: Use per capita data in the output growth rate formula.) ( ) x 100 =.82% 364

6 The economy of Grossmania produces three goods: Widgets, Gizmos, and Thingamajigs. The accompanying table shows the output and prices for years 2006 and Widgets Gizmos Thingamajigs Year Price Quantity Price Quantity Price Quantity 2006 \$100 1 \$10 8 \$ \$110 1 \$12 10 \$ Calculate the nominal GDP for: c = (\$100 x 1) + (\$10 x 8) + (\$5 x 4) = \$200 d = (\$110 x 1) + (\$12 x 10) + (\$4 x 5) = \$ Compute the percentage of growth in nominal GDP from 2006 to % (\$ \$200) x100 = 25% \$ Using 2006 as the base year, calculate the real GDP for \$225 = (\$100 x 1) + (\$10 x 10) + (\$5 x 5) = \$ What is the GDP deflator for 2007? 111 What was the inflation rate between 2006 and 2007? 11% = \$250 x100 = % \$ Compute the real rate of output growth from 2006 to % (\$ \$200) x100 = 12.5% \$ Which of the following is true of real GDP? I. It is adjusted for changes in prices. I. It is always equal to nominal GDP. II. a. I only b. II only c. III only d. I and III e. I, II, and III It increases whenever aggregate output increases. 13. The best measure for comparing a country s aggregate output over time is a. Nominal GDP. b. Real GDP. c. Nominal GDP per capita. d. Real GDP per capita. e. Average GDP per capita. For questions use the information provided in the table below for an economy that produces only apples and oranges. Assume year 1 is the base year. Quantity of Apples 3,000 4,000 Price of Apples \$0.20 \$0.30 Quantity of Oranges 2,000 3,000 Price of Oranges \$0.40 \$ What was the value of real GDP in each year? a. \$1,400 \$2,700 b. \$1,900 \$2,700 c. \$1,400 \$2,000 d. \$1,900 \$2,000 e. \$1,400 \$1, What is the GDP Deflator for Year 2? a. 105 b. 135 c. 136 d. 142 e. 143

### Professor Christina Romer. LECTURE 17 MACROECONOMIC VARIABLES AND ISSUES March 17, 2016

Economics 2 Spring 2016 Professor Christina Romer Professor David Romer LECTURE 17 MACROECONOMIC VARIABLES AND ISSUES March 17, 2016 I. MACROECONOMICS VERSUS MICROECONOMICS II. REAL GDP A. Definition B.

### Conversions between percents, decimals, and fractions

Click on the links below to jump directly to the relevant section Conversions between percents, decimals and fractions Operations with percents Percentage of a number Percent change Conversions between

### Inflation. Inflation. Measurement of Inflation. Inflation Since Inflation is a continual rise in the price level. Chapter 6

Inflation Inflation Chapter 6 Inflation is a continual rise in the price level. From 1800 until World War II, the U.S. inflation rate and price level fluctuated. Since World War II, the rate fluctuated,

### Nominal, Real and PPP GDP

Nominal, Real and PPP GDP It is crucial in economics to distinguish nominal and real values. This is also the case for GDP. While nominal GDP is easier to understand, real GDP is more important and used

### Section 2 Macroeconomics: Answers to Test your understanding quantitative questions (Chapters 8 12)

Section 2 Macroeconomics: Answers to Test your understanding quantitative questions (Chapters 8 12) Answers have been provided for all quantitative Test your understanding questions throughout the textbook.

### Reference: Gregory Mankiw s Principles of Macroeconomics, 2 nd edition, Chapters 10 and 11. Gross Domestic Product

Macroeconomics Topic 1: Define and calculate GDP. Understand the difference between real and nominal variables (e.g., GDP, wages, interest rates) and know how to construct a price index. Reference: Gregory

### The level of price and inflation Real GDP: the values of goods and services measured using a constant set of prices

Chapter 2: Key Macroeconomics Variables ECON2 (Spring 20) 2 & 4.3.20 (Tutorial ) National income accounting Gross domestic product (GDP): The market value of all final goods and services produced within

### Chapter 24. What will you learn in this chapter? Valuing an economy. Measuring the Wealth of Nations

Chapter 24 Measuring the Wealth of Nations 2014 by McGraw-Hill Education 1 What will you learn in this chapter? How to calculate gross domestic product (GDP). Why each component of GDP is important. What

### Economics 212 Principles of Macroeconomics Study Guide. David L. Kelly

Economics 212 Principles of Macroeconomics Study Guide David L. Kelly Department of Economics University of Miami Box 248126 Coral Gables, FL 33134 dkelly@miami.edu First Version: Spring, 2006 Current

### MEASURING GDP AND ECONOMIC GROWTH CHAPTER

MEASURING GDP AND ECONOMIC GROWTH CHAPTER Objectives After studying this chapter, you will able to Define GDP and use the circular flow model to explain why GDP equals aggregate expenditure and aggregate

### Cosumnes River College Principles of Macroeconomics Problem Set 3 Due September 17, 2015

Cosumnes River College Principles of Macroeconomics Problem Set 3 Due September 17, 2015 Name: Solutions Fall 2015 Prof. Dowell Instructions: Write the answers clearly and concisely on these sheets in

### Economics 1012A Introduction to Macroeconomics Fall 2008 Dr. R. E. Mueller Second Midterm Examination October 17, 2008

Economics 1012A Introduction to Macroeconomics Fall 2008 Dr. R. E. Mueller Second Midterm Examination October 17, 2008 Answer all of the following questions by selecting the most appropriate answer on

### Economics 152 Solution to Sample Midterm 1

Economics 152 Solution to Sample Midterm 1 N. Das PART 1 (81 POINTS):Answer the following 27 multiple choice questions on the scan sheet. Each question is worth 3 points). 1. Gross domestic product (GDP)

ANSWERS TO END-OF-CHAPTER QUESTIONS 7-1 In what ways are national income statistics useful? National income accounting does for the economy as a whole what private accounting does for businesses. Firms

### 7 AGGREGATE SUPPLY AND AGGREGATE DEMAND* Chapter. Aggregate Supply

Chapter 7 AGGREGATE SUPPLY AND AGGREGATE DEMAND* Aggregate Supply Topic: Aggregate Supply/Aggregate Demand Model 1) The aggregate supply/aggregate demand model is used to help understand all of the following

### Measuring the Aggregate Economy

CHAPTER 25 Measuring the Aggregate Economy The government is very keen on amassing statistics... They collect them, add them, raise them to the n th power, take the cube root and prepare wonderful diagrams.

### Introduction to Macroeconomics. TOPIC 1: Introduction, definition, measures

TOPIC 1: Introduction, definitions, measures Annaïg Morin CBS - Department of Economics August 2013 What is macroeconomics about? Understanding the behavior of an economy as a whole. studying aggregated

### MEASURING NATIONAL INCOME. Unit 5 Theory and measurement in the macroeconomy

MEASURING NATIONAL INCOME Unit 5 Theory and measurement in the macroeconomy We need information on how much spending, income and output is being created in an economy over a period of time. National income

### Chapter 24 Measuring Domestic Output and National Income QUESTIONS. 1. In what ways are national income statistics useful? LO1

Chapter 24 Measuring Domestic Output and National Income QUESTIONS 1. In what ways are national income statistics useful? LO1 Answer: National income accounting does for the economy as a whole what private

### Gross Domestic Product. Will the Canadian economy weaken through the next year and shrink, or will it remain strong and expand?

Will the Canadian economy weaken through the next year and shrink, or will it remain strong and expand? To assess the state of the economy and to make big decisions about business expansion, firms use

### Macroeconomics: GDP, GDP Deflator, CPI, & Inflation

HOSP 2207 (Economics) Learning Centre Macroeconomics: GDP, GDP Deflator, CPI, & Inflation Macroeconomics is the big picture view of an economy. Microeconomics looks at the market for a specific good, like

### Practice Exam. Name: Date: 1. When workers and employers correctly anticipate an increase in inflation caused by an increase in aggregate demand,

Practice Exam Name: Date: 1. When workers and employers correctly anticipate an increase in inflation caused by an increase in aggregate demand, workers will underestimate the real wage rate workers will

### Summer 2014 Week 3 Tutorial Questions (Ch2) Solutions

Chapter 2: Q1: Macroeconomics P.52 Numerical Problems #3 Q2: Macroeconomics P.52 Numerical Problems #6 Q3: Macroeconomics P.53 Numerical Problems #7 Q4: Macroeconomics P.53 Numerical Problems #9 Q5: Macroeconomics

### Real Vs. Nominal GDP, Per Capita GDP, & the shortcoming of GDP

Real Vs. Nominal, Per Capita, & the shortcoming of Comparing Across Time can grow due to: 1) Economy producing more 2) Prices having risen Calculating and Real in a Simple Economy 1 Nominal nominal, is

### Pre-Test Chapter 6 ed17 2

Pre-Test Chapter 6 ed17 2 Multiple Choice Questions 1. (Last Word) The U.S. government agency responsible for compiling the national income accounts is the: A. Census Bureau. B. Bureau of Labor Statistics

### 7 AGGREGATE SUPPLY AND AGGREGATE DEMAND* Chapter. Key Concepts

Chapter 7 AGGREGATE SUPPLY AND AGGREGATE DEMAND* Key Concepts Aggregate Supply The aggregate production function shows that the quantity of real GDP (Y ) supplied depends on the quantity of labor (L ),

### Why expenditure = income. The Circular Flow. Circular flow. Gross Domestic Product

Gross Domestic Product Why expenditure = income Two definitions: 1. Total expenditure on final goods and services 2. Total income earned by factors of production In In every transaction, the the buyer

### Unit 4: Measuring GDP and Prices

Unit 4: Measuring GDP and Prices ECO 120 Global Macroeconomics 1 1.1 Reading Reading Module 10 - pages 106-110 Module 11 1.2 Goals Goals Specific Goals: Understand how to measure a country s output. Learn

### Solutions to Week 3 Tutorial Questions (Ch2)

Chapter 2: Q1: Macroeconomics P.51 Review Questions #1 Q2: Macroeconomics P.51 Review Questions #5 Q3: Macroeconomics P.52 Numerical Problems #5 Q4: Macroeconomics P.52 Numerical Problems #6 Q5: Macroeconomics

### National Income Accounting. Courtesy : www. carlprosper4nugs.yolasite.com

National Income Accounting Courtesy : www. Introduction to Economy of Ghana Measuring the Economy - National Income Accounting Structure of the Economy and Sectoral Outlook Economic History of Ghana: preindependence,

1. The rate of economic growth is best defined as the: A) percentage increase in real GDP over time. B) increase in investment as a percentage of GDP over time. C) percentage increase in consumption expenditures

### Mods Practice

Mods 17-18-19 Practice Multiple Choice Identify the choice that best completes the statement or answers the question. 1. The aggregate demand curve shows the relationship between the aggregate price level

### 3. When people mistake changes in nominal prices for changes in real prices, economists call this

Homework 10 1. A price that has been corrected for inflation is referred to as a A. stated price. B. nominal price. C. real price. D. listed price. 2. (P 2 P 1 )/P 1 is the formula used to calculate A.

### Solutions to Problem Set #2 Spring, 2013. 1.a) Units of Price of Nominal GDP Real Year Stuff Produced Stuff GDP Deflator GDP

Economics 1021, Section 1 Prof. Steve Fazzari Solutions to Problem Set #2 Spring, 2013 1.a) Units of Price of Nominal GDP Real Year Stuff Produced Stuff GDP Deflator GDP 2003 500 \$20 \$10,000 95.2 \$10,504

### 10 EXPENDITURE MULTIPLIERS* Chapter. Key Concepts. The Consumption Function

Chapter 0 EXPENDITURE MULTIPLIERS* Key Concepts Fixed Prices and Expenditure Plans In the very short run, firms do not change their prices and they sell the amount that is demanded. As a result: The price

### 6 AGGREGATE SUPPLY AND AGGREGATE DEMAND* Chapter. Key Concepts

Chapter 6 AGGREGATE SUPPLY AND AGGREGATE DEMAND* Key Concepts Aggregate Supply The aggregate production function shows that the quantity of real GDP (Y ) supplied depends on the quantity of labor (L ),

### Module 29(65) The AD AS Model. Module Objectives. Module Outline. I. The AD AS Model

Module 29(65) The AS Model Module Objectives What students will learn: The difference between short-run and long-run macroeconomic equilibrium The causes and effects of demand shocks and supply shocks

### Macroeconomia Capitolo 7. Seguire l andamento della macroeconomia. What you will learn in this chapter:

Macroeconomia Capitolo 7 Seguire l andamento della macroeconomia PowerPoint Slides by Can Erbil 2006 Worth Publishers, all rights reserved What you will learn in this chapter: How economists use aggregate

### Economics 102 Homework #2 Due: February 1 st at the beginning of class

Economics 102 Homework #2 Due: February 1 st at the beginning of class Complete all of the problems. Please do not write your answers on this sheet. Show all of your work. 1. Suppose people only consume

### Chapter 8. GDP : Measuring Total Production and Income

Chapter 8. GDP : Measuring Total Production and Income Instructor: JINKOOK LEE Department of Economics / Texas A&M University ECON 203 502 Principles of Macroeconomics Related Economic Terms Macroeconomics:

### ECONOMIC GROWTH* Chapter. Key Concepts

Chapter 5 MEASURING GDP AND ECONOMIC GROWTH* Key Concepts Gross Domestic Product Gross domestic product, GDP, is the market value of all the final goods and services produced within in a country in a given

### EC201 Intermediate Macroeconomics. EC201 Intermediate Macroeconomics Problem Set 1 Solution

EC201 Intermediate Macroeconomics EC201 Intermediate Macroeconomics Problem Set 1 Solution 1) Given the difference between Gross Domestic Product and Gross National Product for a given economy: a) Provide

### Macroeconomics Instructor Miller AD/AS Model Practice Problems

Macroeconomics Instructor Miller AD/AS Model Practice Problems 1. The basic aggregate demand and aggregate supply curve model helps explain A) fluctuations in real GDP and the price level. B) long-term

### Chapter 15: Spending, Income and GDP

Chapter 15: Spending, Income and GDP By the end of this chapter, you will be able to: Define GDP Calculate GDP by: adding up value added of production. adding up expenditure. adding up income. Distinguish

### Practice Final Exam Economics 503 Fundamentals of Economic Analysis 2:30-5:30PM

Name Student ID Practice Final Exam Economics 503 Fundamentals of Economic Analysis 2:30-5:30PM Write all of your answers on this white exam paper. Do not hand in the blue books. Multiple Choices (2 points

### Introduction. Learning Objectives. Chapter 17 Domestic and International Dimensions of Monetary Policy

Copyright 2011 by Pearson Education, Inc. Chapter 17 Domestic and International Dimensions of Monetary Policy All rights reserved. Introduction From the early 1970s through the late 1990s, the number of

### CHAPTER 5: MEASURING GDP AND ECONOMIC GROWTH

CHAPTER 5: MEASURING GDP AND ECONOMIC GROWTH Learning Goals for this Chapter: To know what we mean by GDP and to use the circular flow model to explain why GDP equals aggregate expenditure and aggregate

### Supplement Unit 3. Gross Domestic Product (GDP): What Is It and How Is It Measured?

1 Supplement Unit 3. Gross Domestic Product (GDP): What Is It and How Is It Measured? Gross Domestic Product (GDP) is the market value of all final user goods and services produced domestically during

### 2 Macroeconomics LESSON 2

2 Macroeconomics LESSON 2 Macroeconomic Goals and GDP Introduction and Description The goals of U.S. macroeconomic policy makers are captured in two laws: the Employment Act of 1946 and the Full Employment

### Measuring GDP and Economic Growth

20 Measuring GDP and Economic Growth After studying this chapter you will be able to Define GDP and explain why GDP equals aggregate expenditure and aggregate income Explain how Statistics Canada measures

### Practice Problems on NIPA and Key Prices

Practice Problems on NIPA and Key Prices 1- What are the three approaches to measuring economic activity? Why do they give the same answer? The three approaches to national income accounting are the product

### Chapter 19. The Demand for Money

Chapter 19 The Demand for Money Velocity of Money and Equation of Exchange M = the money supply P = price level Y = aggregate output (income) P Y = aggregate nominal income (nominal GDP) V= velocity of

### Chap 11 & 12. Measuring the Cost of Living THE CONSUMER PRICE INDEX

Chap 11 & 12 Chap 10: Measuring a Nation s Income: GDP, Nominal GDP, Real GDP, and GDP Deflator Next topic: Chap 11: Measuring the Cost of Living: CPI GDP from an whole economy point of view CPI from a

### . consumption and investment spending.

Chapter 10 1. The aggregate demand curve: A. is upward sloping because a higher price level is necessary to make production profitable as production costs rise. B. is downward sloping because production

### GDP: Measuring Total Production and Income

Chapter 7 (19) GDP: Measuring Total Production and Income Chapter Summary While microeconomics is the study of how households and firms make choices, how they interact in markets, and how the government

### These are some practice questions for CHAPTER 19. Each question should have a single answer. But be careful. There may be errors in the answer key!

These are some practice questions for CHAPTER 19. Each question should have a single answer. But be careful. There may be errors in the answer key! 1. Real national income is also known as a. nominal national

### Principles of Macroeconomics Prof. Yamin Ahmad ECON 202 Fall 2004

Principles of Macroeconomics Prof. Yamin Ahmad ECON 202 Fall 2004 Sample Final Exam Name Id # Part B Instructions: Please answer in the space provided and circle your answer on the question paper as well.

### Big Concepts. Measuring U.S. GDP. The Expenditure Approach. Economics 202 Principles Of Macroeconomics

Lecture 6 Economics 202 Principles Of Macroeconomics Measuring GDP Professor Yamin Ahmad Real GDP and the Price Level Economic Growth and Welfare Big Concepts Ways to Measure GDP Expenditure Approach Income

### Output and Expenditure in the Short Run

Chapter 11 (23) Output and Expenditure in the Short Run Chapter Summary Chapter 10 examined the determinants of long-run economic growth. In the short run, however, the economy experiences fluctuations

### What causes the business cycle? Why did U.S. economy go into recession in 2008?

What causes the business cycle? Why did U.S. economy go into recession in 2008? Aggregate Supply and 13 Aggregate Demand When you have completed your study of this chapter, you will be able to CHAPTER

### 3. Define the multiplier. How is it related to real GDP and the initial change in spending? How can the multiplier have a negative effect?

Extra Review Questions and Answers for Chapter 10 B. Answers to Short -Answer, Essays, and Problems 1. Whenever there is a shift in the investment schedule and/or the consumption-saving schedules, there

### 1. A glimpse of the real sector: GDP, inflation rate, macroeconomic identities

1. A glimpse of the real sector: GDP, inflation rate, macroeconomic identities 1. Real sector and financial sector Macroeconomics studies the aggregate effects of what people do. Most of what people do

### A country s economy is in a short-run equilibrium with an output level less than the full-employment output level. Assume an upwardsloping aggregate

ADAS Practice A country s economy is in a short-run equilibrium with an output level less than the full-employment output level. Assume an upwardsloping aggregate supply curve. (a) Using a correctly labeled

### MONEY: DOLLAR VS. WON

MONEY: DOLLAR VS. WON GRADES: 4-12 AUTHOR: Mel Miller SUBJECT: Social Studies, Economics TIME REQUIRED: 1 class period OBJECTIVES: 1. Recognize the currency of the Republic of Korea 2. Convert Korean money

### Measuring Economic Performance. Chapter 2

Measuring Economic Performance Chapter 2 Outline Gross Domestic Product Measuring GDP Through Spending Measuring GDP Through Production Measuring GDP Through Income Saving and Investment Transactions with

### ECON 1010 Principles of Macroeconomics Practice Test 2 Solutions

ECON 1010 Principles of Macroeconomics Practice Test 2 Solutions Section A: Multiple Choice Questions. (40 points; 2 pts each) 1. The unemployment rate is the ratio of all of the people: A) out of work

### Aggregate Demand and Aggregate Suppy

chapter 12 (28) Demand and Suppy Chapter Objectives Students will learn in this chapter: How the aggregate demand curve illustrates the relationship between the aggregate and the quantity of aggregate

### MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

Econ 111 Summer 2007 Final Exam Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The classical dichotomy allows us to explore economic growth

### 14.02 Principles of Macroeconomics Problem Set 1 Fall 2005 ***Solution***

Part I. True/False/Uncertain Justify your answer with a short argument. 14.02 Principles of Macroeconomics Problem Set 1 Fall 2005 ***Solution*** Posted: Monday, September 12, 2005 Due: Wednesday, September

### ECON300, Spring 2012 Intermediate Macroeconomics Professor: Hui He. Homework 1 Suggested Answer (Total points: 100)

ECON300, Spring 2012 Intermediate Macroeconomics Professor: Hui He Homework 1 Suggested Answer (Total points: 100) Understanding the growth rate and how to measure it Problem no. 1 on page 35. (10 points)

### EC2105, Professor Laury EXAM 2, FORM A (3/13/02)

EC2105, Professor Laury EXAM 2, FORM A (3/13/02) Print Your Name: ID Number: Multiple Choice (32 questions, 2.5 points each; 80 points total). Clearly indicate (by circling) the ONE BEST response to each

### Module 40 Economic Growth in Macroeconomic Models

What you will learn in this Module: How long-run economic growth is represented in macroeconomic models How to model the effects of economic growth policies Module 40 Economic Growth in Macroeconomic Models

### Exchange Rate Terminology and Analytics

Harvard Business School 9-701-121 April 5, 2001 Exchange Rate Terminology and Analytics The level of and fluctuations in exchange rates have an important influence on firm performance. But the terminology

### ECONS PASCO {ECON 152}

ECONS PASCO {ECON 152} 1. Macroeconomics deals with a. the activities of individual units b. the behaviour of the electronics industry c. economic aggregates d. the behaviour of firms 2. The study of inflation

### Chapter 12. Aggregate Expenditure and Output in the Short Run

Chapter 12. Aggregate Expenditure and Output in the Short Run Instructor: JINKOOK LEE Department of Economics / Texas A&M University ECON 203 502 Principles of Macroeconomics Aggregate Expenditure (AE)

### VANCOUVER ISLAND UNIVERSITY. ECON212: PRINCIPLES OF MACROECONOMICS, Spring 2013 SAMPLE MIDTERM EXAM. Name (Last, First): ID #: Signature:

Important: Please remember it is a sample exam. Number of questions in each section and structure of questions in section b and c would vary as discussed in class VANCOUVER ISLAND UNIVERSITY ECON212: PRINCIPLES

### Pre-Test Chapter 16 ed17

Pre-Test Chapter 16 ed17 Multiple Choice Questions 1. Suppose total output (real GDP) is \$4000 and labor productivity is 8. We can conclude that: A. real GDP per capita must be \$500. B. the price-level

### Review for the Midterm Exam.

Review for the Midterm Exam. 1. Chapter 1 The principles of decision making are: o People face tradeoffs. o The cost of any action is measured in terms of foregone opportunities. o Rational people make

### ECONOMICS 1 Problem Set 4 -- Suggested Answers

Department of Economics Prof. Kenneth Train University of California, Berkeley Fall Semester 2011 I. Measurement of Price Changes. ECONOMICS 1 Problem Set 4 -- Suggested Answers In Merryland, there are

### Chapter 22. Aggregate Demand and Supply Analysis Aggregate Demand

Chapter 22 Aggregate Demand and Supply Analysis 22.1 Aggregate Demand 1) The aggregate demand curve is the total quantity of an economyʹs A) intermediate goods demanded at all price levels. B) intermediate

### Macroeconomics CHAPTER 10. Aggregate Supply and Aggregate Demand. Aggregate Supply. The Short-Run Aggregate Supply Curve

Aggregate Supply Macroeconomics CHAPTER 10 The aggregate supply curve shows the relationship aggregate output. Aggregate Supply and Aggregate Demand 3 What you will learn in this chapter: How the aggregate

### Econ 202 Section 4 Final Exam

Douglas, Fall 2009 December 15, 2009 A: Special Code 00004 PLEDGE: I have neither given nor received unauthorized help on this exam. SIGNED: PRINT NAME: Econ 202 Section 4 Final Exam 1. Oceania buys \$40

### ECON 1010 Principles of Macroeconomics Exam #2. Section A: Multiple Choice Questions. (30 points; 2 pts each)

ECON 1010 Principles of Macroeconomics Exam #2 Section A: Multiple Choice Questions. (30 points; 2 pts each) #1. If the price level in the economy and the nominal wages both doubled, then real wages would

### In this chapter we learn the potential causes of fluctuations in national income. We focus on demand shocks other than supply shocks.

Chapter 11: Applying IS-LM Model In this chapter we learn the potential causes of fluctuations in national income. We focus on demand shocks other than supply shocks. We also learn how the IS-LM model

### A. GDP, Economic Growth, and Business Cycles

ECON 3023 Hany Fahmy FAll, 2009 Lecture Note: Introduction and Basic Concepts A. GDP, Economic Growth, and Business Cycles A.1. Gross Domestic Product (GDP) de nition and measurement The Gross Domestic

### Understanding the federal budget process and the recent history of outlays, revenues, deficits, and debt. Supply-side effects of fiscal policy

29 Fiscal Policy Learning Objectives Understanding the federal budget process and the recent history of outlays, revenues, deficits, and debt Supply-side effects of fiscal policy Fiscal stimulus to fight

### Macroeconomics Instructor Miller Aggregate Expenditure Practice Problems

Macroeconomics Instructor Miller Aggregate Expenditure Practice Problems 1. The aggregate expenditure model focuses on the relationship between real spending and. A) short-run; real GDP B) short-run; inflation

### Lecture 3: National Income Accounting Reference - Chapter 5. 3) The Income Approach

Lecture 3: National Income Accounting Reference - Chapter 5 3) The Income Approach The income approach defines GDP in terms of the income derived or created from producing final goods and services. Net

### MONTE VISTA CHRISTIAN SCHOOL SOSC 4452 AP Macroeconomics Course Syllabus

MONTE VISTA CHRISTIAN SCHOOL SOSC 4452 AP Macroeconomics Course Syllabus Course Description A college level course introducing the study of macroeconomics. The course will begin with an overview of basic

### eday Lessons Mathematics Grade 8 Student Name:

eday Lessons Mathematics Grade 8 Student Name: Common Core State Standards- Expressions and Equations Work with radicals and integer exponents. 3. Use numbers expressed in the form of a single digit times

### The Circular Flow 1/15/2013. Gross Domestic Product: Expenditure and Income

IN THIS CHAPTER, YOU WILL LEARN: ECON 3010 Intermediate Macroeconomics Chapter 2 The Data of Macroeconomics the meaning and measurement of the most important macroeconomic statistics: gross domestic product

### 1. What is an investment schedule and how does it differ from an investment demand curve? LO1

Chapter 28 The Aggregate Expenditures Model QUESTIONS 1. What is an investment schedule and how does it differ from an investment demand curve? LO1 Answer: An investment schedule shows the level of investment

### Macroeconomics: New concepts

Macroeconomics: New concepts Fatma September 2014 How to measure total output in an economy Gross Domestic Product (GDP) The value of final goods and services, produced in an economy during a given period

### AP MACROECONOMICS 2012 SCORING GUIDELINES

AP MACROECONOMICS 2012 SCORING GUIDELINES Question 1 12 Points (2 + 6 + 4) (a) 2 points: One point is earned for a correctly labeled graph of the production possibilities curve (PPC). One point is earned

### PBL: Macroeconomics. Competency: Aggregate Demand and Supply. Competency: Consumption and Saving

Competency: Aggregate Demand and Supply 1. Define aggregate demand and aggregate supply. 2. Describe the individual components of aggregate demand and aggregate supply. 3. Describe the problem that leakages

### Chapter 12: Gross Domestic Product and Growth Section 1

Chapter 12: Gross Domestic Product and Growth Section 1 Key Terms national income accounting: a system economists use to collect and organize macroeconomic statistics on production, income, investment,

### Econ 202 Final Exam. Table 3-1 Labor Hours Needed to Make 1 Pound of: Meat Potatoes Farmer 8 2 Rancher 4 5

Econ 202 Final Exam 1. If inflation expectations rise, the short-run Phillips curve shifts a. right, so that at any inflation rate unemployment is higher. b. left, so that at any inflation rate unemployment

### ECON 102 Spring 2014 Homework 3 Due March 26, 2014

ECON 102 Spring 2014 Homework 3 Due March 26, 2014 1. For this problem, you need to download data about the country Badgerstan from the website: https://mywebspace.wisc.edu/mmorey/web/102data.xls The file