# April 4th, Flow C was 9 trillion dollars, Flow G was 2 trillion dollars, Flow I was 3 trillion dollars, Flow (X-M) was -0.7 trillion dollars.

Save this PDF as:

Size: px
Start display at page:

Download "April 4th, 2014. Flow C was 9 trillion dollars, Flow G was 2 trillion dollars, Flow I was 3 trillion dollars, Flow (X-M) was -0.7 trillion dollars."

## Transcription

1 Problem Session I April 4th, 2014 Reference: Parkin, Introduction to economics, The rm that printed your Introduction to economics textbook bought the paper from XYZ Paper Mills. Was this purchase of paper part of GDP? If not, how does the value of the paper get counted in GDP? Solution:To calculate GDP, we value the nal goods and services produced. A nal good or service is an item that is bought by its nal user during a specied time period. It contrasts with an intermediate good or service, which is an item that is produced by one rm, bought by another rm, and used as a component of a nal good or service. In this case, paper is an intermediate good, which is used to "produce" your economics textbook. Therefore, the purchase of paper by the company that printed your book from the XYZ Paper Mills is not a part of GDP. If we were to add the value of intermediate goods and services produced to the value of nal goods and services, we would count the same thing many times-a problem called double counting. The value of the book already includes the value of the paper. 2. The circular ow model of an economy is given below. During 2008, in an economy: Flow C was 9 trillion dollars, Flow G was 2 trillion dollars, Flow I was 3 trillion dollars, Flow (X-M) was -0.7 trillion dollars. Name the ows and calculate the value of: Aggregate income 1

2 GDP Solution: The gure given in the problem illustrates the circular ow of expenditure and income. The economy consists of households, rms, governments, and the rest of the world, which trade in factor markets and goods (and service) markets. The ows among these can be enlisted as below: Y, is the aggregate income of the households, including the retained earnings. Households sell and rms buy the services of labor, capital, and land in factor markets. For these factor services, rms pay income to households: wages for labor services, interest for the use of capital, and rent for the use of land. A fourth factor of production, entrepreneurship, receives prot. Firms' retained earnings-prots that are not distributed to households- are part of the household income. You can think of retained earnings as being income that households save and lend back to rms.

3 Firms sell and households buy consumer goods and services in the goods market. The total payment for these goods and services is consumption expenditure, shown by the ow labeled C. Firms buy and sell new capital equipment in the goods market. Some of what rms produce is not sold but is added to inventory. When a rm adds unsold output to inventory, we can think of the rm as buying goods from itself. The purchase of new plant, equipment, and buildings and the additions to inventories are investment, shown as the ow labeled I. Governments buy goods and services from rms and their expenditure on goods and services called government expenditure, shown as the ow labeled G. Firms sell goods and services to the rest of the world- exports; and buy goods and services from the rest of the world- imports. The value of exports (X) minus the value of imports (M) is called net exports, shown as the ow (X-M). Aggregate income is equal to the total amount paid for the services of the factors of production used to produce nal goods and services -wages, interest, rent, and prot. Because rms pay out as incomes everything they receive from the sale of their output, aggregate income equals aggregate expenditure. Aggregate expenditure is the sum of consumption, investment, government expenditure and net exports. Therefore: Y=C+I+G+(X-M)=9+2+3+(- 0.7)=13.3 trillion dollars. GDP equals aggregate expenditure and equals aggregate income. Therefore GDP is also equal to 13.3 trillion dollars. 3. Use the following data. The BLS reported the following CPI data: June June June Calculate the ination rates for the years ended June 2007 and June Why might these CPI numbers be biased?

4 Solution: We calculate the ination rate as the annual percentage change in the CPI. To calculate the ination rate, we use the formula: We can use this formula to calculate the ination rate for the year ended June 2007: Ination Rate= 100 = 2.62% If we calculate the ination rate for the year ended June 2008: Ination Rate= 100 = 4.69 % The main sources of bias in the CPI are: New goods bias: Since a PC is more expansive than a typewriter was, the arrival of the PC puts and upward bias into the CPI. Quality change bias: Many goods get better every year. Part of the rise in prices of these items is a payment for improved quality and not ination. But the CPI counts the entire price as ination and so overstates the ination. Commodity substitution bias: Changes in relative prices lead consumers to change the items they buy. For example, if the price of beef increases and the price of chicken remains unchanged, people buy more chicken and less beef. The price of protein has not changed. But the CPI ignores the substitution of chicken for beef, it says the price of protein has increased. Outlet substitution bias: When confronted with higher prices, people use discount stores more frequently and convenience stores less frequently. This phenomenon is called outlet substitution. The CPI surveys do not monitor outlet substitutions.

5 4. Information regarding the output and prices in an economy for the last three years is depicted in the table below. Compute nominal GDP, real GDP and GDP deator for all three years, using 2011 as the base year. At what rate did the prices change during the period from the beginning of 2010 to the end of 2012? In real terms, how much did prosperity in the economy increase during 2012? What is the price level in 2011 and what is the rate of ination in 2010 measured by the GDP deator? Solution: Nominal GDP: Nominal GDP is the value of nal goods and services produced in a given year when valued at the prices of that year. Nominal GDP in 2010= (2 100) + (5 250) = = 1450 Nominal GDP in 2011= (4 200) + (8 400) = = 4000 Nominal GDP in 2012= (5 250)+(10 400) = = 5250 Real GDP:Real GDP is the value of nal goods and services produced in a given year when valued at the prices of a reference base year. Since 2011 is given as the base year, we can calculate the real GDP as follows:

6 Real GDP in 2010= (4 100) + (8 250) = = 2400 Real GDP in 2011= (4 200) + (8 400) = = 4000 (Since 2011 is the base year, nominal and real GDP's are the same) Real GDP in 2012= (4 250) + (8 400) = = 4200 GDP Deator can be found by using the following formula: Then GDP Deator can be calculated as follows: GDP Deator in 2010= = GDP Deator in 2010= = GDP Deator in 2010= = From the beginning of 2010 to the end of 2012, the rate of change in the prices can be found by the change in GDP deator: = % In order to measure the change of prosperity of the economy during 2012, we should nd at which rate the real GDP has changed in = = 5 % We can measure the ination rate in 2010 by nding the change in GDP deator from 2010 to 2011:

7 = % When should we expect GDP deator and CPI to be exactly identical? Solution:CPI measures the price of a certain basket of goods, that is intended to represent the consumption behavior of the consumers. Therefore, it only indicates the price change of the goods that an average consumer consumes. On the other hand, GDP includes all of the goods produced in the economy. Therefore, GDP deator indicates the price change of all of the goods and services that is produced in an economy. Hence, it is a more comprehensive measure of price than CPI. These two indices would be the same if CPI measures all of the goods and services that is produced in an economy, with exactly the same weights. 6. Brazil's real GDP was 1,360 trillion reais in 2009 and 1,434 trillion reais in Brazil's population was million in 2009 and million in Calculate The economic growth rate The growth rate of real GDP per person. The approximate number of years it takes for real GDP per person in Brazil to double if the 2010 economic growth rate and population growth rate are maintained. Solution: Growth Rate= 100 = 5.44 % 1360 Real GDP per capita in 2009= = 7101 \$ Real GDP per capita in 2010= = 7418 \$

8 Growth rate of GDP per capita in 2009= % = We should use the "70-rule" in order to nd the approximate doubling period of GDP: = years. 7. The following tables describe an economy's labor market and its production function in What are the equilibrium real wage rate, the quantity of labor employed in 2010, labor productivity, and potential GDP in 2010? In 2011, the population increases and labor hours supplied increase by 10 at each wage rate, labor productivity, and potential GDP in 2011?

9 In 2011, the population increases and labor hours supplied increase by 10 at each real wage rate. Does the standard of living in this economy increase in 2011? Explain why or why not? Solution: As you may remember, the equilibrium in the labor market occurs at the point where labor supply is equal to demand for labor. At the equilibrium, the real wage rate is also determined. Then the equilibrium quantity of labor determines the potential GDP of the economy. You can see these interactions in the gure below: According to this, we should nd the equilibrium quantity of labor

10 in the labor market rst. Examining the labor market schedule given, we can easily nd the equilibrium quantity of labor is 25 hours, at which point the labor supplied is equal to the demand for labor. And the real wage rate is 40 \$/hour. Then from the production function, we can nd the potential real GDP of the economy, which is equal to 1625 \$ (in 2005 dollars). Labor productivity is the quantity of real GDP produced by an hour of labor.then: Labor productivity in 2010= = 65 \$/hour. If the population increases in 2011 and labor hours supplied increase by 10 at each real wage rate, then the labor market schedule

11 will be as follows: The potential GDP corresponding to this level of empoyment will be: Then we can calculate the new labor productivity as follows: = 60 \$/hour. Population growth brings growth in the supply of labor, but it does not change the demand for labor or the production function. The economy can produce more output by using more labor, but the labor productivity falls. When labor productivity falls, real GDP per person decreases and brings a decrease in the standard of living. Therefore, in this case,

12 the rise in the real GDP of the overall economy, does not translate into the rise in the standard of living. 8. First Call,Inc., is a cellular phone company. It plans to build an assembly plant that costs 10 million dollars if the real interest rate is 6 percent a year. If the real interest rate is 5 percent a year, First Call will build a larger plant that costs 12 million dollar. And if the real interest rate is 7 percent a year, First Call will build a smaller plant that costs 8 million dollars. Draw a graph of First Call's demand for loanable funds curve. First Call expects its prot from the sale of cellular phones to double next year. If other things remain the same, explain how this increase in expected prot inuences First Call's demand for loanable funds. Draw a graph to illustrate how an increase in the supply of loanable funds and a decrease in the demand for loanable funds can lower the real interest rate and leave the equilibrium quantity of loanable funds unchanged. Solution: The demand for loanable funds is the relationship between the quantity of loanable funds demanded and the real interest rate, when all other inuences on borrowing plans remain the same. First Call,Inc.'s demand for loanable funds curve can be depicted as in the gure below: When the expected prot changes, the demand for loanable funds changes. Other things remaining the same, the greater the expected prot from the new capital, the greater is the amount of investment and the greater the demand for loanable funds. If the demand for loanable funds curve shifts to the right. We can depict an increase in the supply of loanable funds and a decrease in the demand for loanable funds can lower the real interest rate and leave the equilibrium quantity of loanable funds unchanged as follows:

13

14 9. The following table shows an economy's demand for loanable funds and the supply of loanable funds schedules, when the government's budget is balanced. Suppose that the government has a budget surplus of 1 trillion dollar. What are the real interest rate, the quantity of investment, and the quantity of private saving? Is there any crowding out in this situation?

15 Suppose that the government has a budget decit of 1 trillion dollar. What are the real interest rate, the quantity of investment, and the quantity of private saving? Is there any crowding out in this situation? Suppose that the government has a budget decit of 1 trillion and the Ricardo-Barro eect occurs. What are the real interest rate and the quantity of investment? Solution: Under current conditions,the equilibrium in the loanable funds market occurs when the loanable funds demanded equals the loanable funds supplied. Therefore, the equilibrium level of loanable funds is 7 trillion \$ and the equilibrium real interest rate is 7. If the government has a budget surplus of 1 trillion dollars, then the supply of loanable funds increases at each real interest rate by 1 trillion dollars, which means the loanable funds supply curve shifts to the right. This means that the equilibrium real interest rate falls to 6 percent a year, the quantity of loanable funds increases to 7.5 trillion dollars per year, and investment is 7.5 trillion dollars a year. The fall in the interest rate decreases private saving to 6.5 trillion dollars, but investment increases to 7.5 trillion dollars, which is nanced by private saving plus the government budget surplus (government saving).

16 If the government has a budget decit of 1 trillion dollars, then the demand for loanable funds increases at each real interest rate by 1 trillion dollars, which means the demand for loanable funds curve shifts to the right. This means that the equilibrium interest rate increases to 8 percent per year. Ant the equilibrium quantity of loanable funds increases to 7.5 trillion dollars a year. The rise in the real interest rate increases private saving to 7.5

17 trillion dollars, but investment decreases to 6.5 trillion dollars, because 1 trillion dollar of private saving must nance the government budget decit. The tendency for a government decit to raise the real interest rate and decrease investment is called the crowding-out eect. In this case, the budget decit of the government crowds out investment by competing with businesses for scarce nancial capital.

18 Ricardo-Barro Eect means that government budget surplus or decit has no eect on real interest rate, or investment. Because, tax payers are rational. Decit today means that future taxes will be higher, and smaller future disposable income, saving increases today. Private saving and private supply of loanable funds increase to match the quantity of loanable funds demanded by the government. So the budget decit has no eect on the real interest rate or investment. 10. In June 2009, currency held by individuals and businesses was 853 billion dollars; traveller's checks were 5 billion dollars,; checkable deposits owned by individuals and businesses were 792 billion dollars; saving deposits were 4,472 billion dollars; time deposits were 1,281 billion dollars; and money market funds and other deposits were 968 billion dollars. Calculate M1 and M2 in June Solution: M1 and M2 are two ocial measures of money. M1 and M2 consist of the following components.

19 Then M1 and M2 can be calculated as follows: M1= = 1650 \$ M2= = 8371 \$ 11. The gure shows the demand for money curve. If the Fed decreases the quantity of real money supplied from 4 trillion

20 dollars to 3.9 trillion dollars, explain how the price of the bond will change. Solution: If Fed decreases the supply of money from 4 trillion dollars to 3.9 trillion dollars, the rate of interest rises from 4 percent to 6 percent. In order to do this, Fed will sell bonds with open market operations. This will increase the supply of bonds, and increased bond supply will result in a decrease in its price. 12. Quantecon is a country in which the quantity theory of money operates. In year 1, the economy is at full employment and real GDP is 400 million dollars, the price level is 200, and the velocity of circulation is 20. In year 2, the quantity of money increases by 20 percent. Calculate the quantity of money, the price level, real GDP, and the velocity of circulation in year 2. Solution: The quantity theory of money is the proposition that in the long run, an increase in the quantity theory of money brings an equal percentage increase in the price level. The equation of exchange tells us how Quantity of money (M), Velocity of circulation (V),Aggregate price level (P) and Real GDP (Y) are

21 connected. This equation is: MV = P Y If the quantity of money does not inuence the velocity of circulation or real GDP, then this equation becomes the quantity theory of money. In this case, the equation of exchange tells us that in the long run, the price level is determined by the quantity of money. That is, where (V/Y ) is independent of M. So a change in M brings a proportional change in P. In the problem given above, In year 1; M 1 V = P 1 Y M 1.20 = M 1 = 4000 In year 2; M increases %20. This means that M 2 = 1.2M 1 = 1, = 4800 Since the velocity of money, V=20 and real GDP=400 is constant in the short-run; = P P 2 = 240 Which means a proportional increase in the aggregate price level.

### Problem Session II. May 9th, Reference: Parkin, Introduction to economics, 2011.

Problem Session II May 9th, 2014 Reference: Parkin, Introduction to economics, 2011. Important Note: Please contact to your professor about which chapters are included in the midterm and nal exams. 1.

### 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.

### Households Wages, profit, interest, rent = \$750. Factor markets. Wages, profit, interest, rent = \$750

KrugmanMacro_SM_Ch07.qxp 11/9/05 4:47 PM Page 87 Tracking the Macroeconomy 1. Below is a simplified circular-flow diagram for the economy of Micronia. a. What is the value of GDP in Micronia? b. What is

### Macroeconomics, 10e, Global Edition (Parkin) Chapter 24 Finance, Saving, and Investment. 1 Financial Institutions and Financial Markets

Macroeconomics, 10e, Global Edition (Parkin) Chapter 24 Finance, Saving, and Investment 1 Financial Institutions and Financial Markets 1) The term "capital," as used in macroeconomics, refers to A) the

### 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

### 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

### 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

### 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

### 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

### 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

### Explain how borrowing and lending decisions are made and how these decisions interact in the loanable funds market.

Finance, Saving, and Investment Chapter CHAPTER CHECKLIST Describe the financial markets and the key financial institutions. Finance is the lending and borrowing that moves funds from savers to spenders.

### 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

### University of Lethbridge Department of Economics ECON 1012 Introduction to Macroeconomics Instructor: Michael G. Lanyi

University of Lethbridge Department of Economics ECON 1012 Introduction to Macroeconomics Instructor: Michael G. Lanyi CH 23 Finance Saving Investment 1) Capital is A) the tools, instruments, machines,

### Finance, Saving, and Investment

23 Finance, Saving, and Investment Learning Objectives The flows of funds through financial markets and the financial institutions Borrowing and lending decisions in financial markets Effects of government

### MONEY, INTEREST, REAL GDP, AND THE PRICE LEVEL*

Chapter 11 MONEY, INTEREST, REAL GDP, AND THE PRICE LEVEL* The Demand for Topic: Influences on Holding 1) The quantity of money that people choose to hold depends on which of the following? I. The price

### 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

### Douglas, Spring 2008 February 21, 2008 PLEDGE: I have neither given nor received unauthorized help on this exam.

, Spring 2008 February 21, 2008 PLEDGE: I have neither given nor received unauthorized help on this exam. SIGNED: PRINT NAME: Econ 202 Midterm 1 1. What will happen to the equilibrium price of hamburgers

### 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

### Name: Days/Times Class Meets: Today s Date:

Name: _ Days/Times Class Meets: Today s Date: Macroeconomics, Spring 2008, Final Exam, several versions Read these Instructions carefully! You must follow them exactly! I) On your Scantron card you must

### Name (Please print) Assigned Seat. ECO202: PRINCIPLES OF MACROECONOMICS FIRST MIDTERM EXAM SPRING 2011 Prof. Bill Even FORM 1.

Name (Please print) Assigned Seat ECO202: PRINCIPLES OF MACROECONOMICS FIRST MIDTERM EXAM SPRING 2011 Prof. Bill Even FORM 1 Directions 1. Fill in your scantron with your unique id and form number. Doing

### 7. Which of the following is a flow variable? A) wealth B) the number unemployed C) government debt D) income

Name: Date: 1. GDP is all of the following except the total: A) expenditure of everyone in the economy. B) income of everyone in the economy. C) expenditure on the economy's output of goods and services.

### Chapter 11: Activity

Economics for Managers by Paul Farnham Chapter 11: Measuring Macroeconomic Activity 11.1 Measuring Gross Domestic Product (GDP) GDP: the market value of all currently yproduced final goods and services

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

Suvey of Macroeconomics, MBA 641 Fall 2006, Final Exam Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Modern macroeconomics emerged from

### 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

### Exam 1 Review. 3. A severe recession is called a(n): A) depression. B) deflation. C) exogenous event. D) market-clearing assumption.

Exam 1 Review 1. Macroeconomics does not try to answer the question of: A) why do some countries experience rapid growth. B) what is the rate of return on education. C) why do some countries have high

### 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,

### The Full-Employment Model. Stiglitz, Walsh (2006) Economics Chapter 24 (MA6)

The Full-Employment Model Stiglitz, Walsh (2006) Economics Chapter 24 (MA6) Macroeconomic Equilibrium all markets are interrelated what happens in one market will have impact on other markets wages, interest

### What three main functions do they have? Reducing transaction costs, reducing financial risk, providing liquidity

Unit 4 Test Review KEY Savings, Investment and the Financial System 1. What is a financial intermediary? Explain how each of the following fulfills that role: Financial Intermediary: Transforms funds into

### I. MULTIPLE CHOICES. Choose the one alternative that best completes the statement to answer the question.

Econ 20B- Additional Problem Set I. MULTIPLE CHOICES. Choose the one alternative that best completes the statement to answer the question. 1.According to the theory of liquidity preference, the money supply

### 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

### 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

### Tracking the Macroeconomy

chapter 7(23) Tracking the Macroeconomy Chapter Objectives Students will learn in this chapter: How economists use aggregate measures to track the performance of the economy. What gross domestic product,

### 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

### 3. a. If all money is held as currency, then the money supply is equal to the monetary base. The money supply will be \$1,000.

Macroeconomics ECON 2204 Prof. Murphy Problem Set 2 Answers Chapter 4 #2, 3, 4, 5, 6, 7, and 9 (on pages 102-103) 2. a. When the Fed buys bonds, the dollars that it pays to the public for the bonds increase

### Economics 152 Solution to Sample Midterm 2

Economics 152 Solution to Sample Midterm 2 N. Das PART 1 (84 POINTS): Answer the following 28 multiple choice questions on the scan sheet. Each question is worth 3 points. 1. If Congress passes legislation

### Econ 202 H01 Final Exam Spring 2005

Econ202Final Spring 2005 1 Econ 202 H01 Final Exam Spring 2005 1. Which of the following tends to reduce the size of a shift in aggregate demand? a. the multiplier effect b. the crowding-out effect c.

### This is the on-line Multiple Choice Quiz for Chapter 4. Please do the following. Go to the special codes section on your score sheet

Instructions: This is the on-line Multiple Choice Quiz for Chapter 4. Please do the following. Step I - Go to the special codes section on your score sheet Write your section number (1, or 4, or 5) under

### 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

### S m. D m0. D m1 Q m Amount of money demanded and supplied

Rate of interest, i (p ercent) Chapter - Interest Rates and Monetary Policy Chapter Interest Rates and Monetary Policy QUESTIONS 1. What is the basic determinant of (a) the transactions demand and (b)

### THE ECONOMY AT FULL EMPLOYMENT: THE CLASSICAL MODEL*

Chapter 8 THE ECONOMY AT FULL EMPLOYMENT: THE CLASSICAL MODEL* The Classical Model: A Preview Topic: Real Variables 1) Real variables A) are those that determine the cost of living. B) are those that determine

### Econ 202 Final Exam. Douglas, Spring 2010 May 6, 2010 PLEDGE: I have neither given nor received unauthorized help on this exam.

, Spring 2010 May 6, 2010 PLEDGE: I have neither given nor received unauthorized help on this exam. SIGNED: PRINT NAME: Econ 202 Final Exam Multiple Choice. 2 points each. 1. According to the long-run

Chapter 2 The Measurement and Structure of the National Economy Chapter Outline National Income Accounting: The Measurement of Production, Income, and Expenditure Gross Domestic Product Saving and Wealth

### At the end of Chapter 10, you will be able to answer the following:

1 Objectives for Chapter 10 The Circular Flow Model At the end of Chapter 10, you will be able to answer the following: 1. Explain the basic circular flow model. 2. Define "consumption" and "saving" 3.

### Econ 102 Homework #9 AD/AS and The Phillips Curve

Econ 102 Homework #9 D/S and The Phillips Curve 1. s on previous homework assignments, turn in a news article together with your summary and explanation of why it is relevant to this week s topic, D/S

### 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)

### Chapter 6: Measuring the Price Level and Inflation. The Price Level and Inflation. Connection between money and prices. Index Numbers in General

Chapter 6: The Price Level and Measuring the Price Level and Microeconomic causes changes in individual markets can explain only a tiny fraction of price change For the most part, price rises came about

### The Data of Macroeconomics

CHAPTER 2 The Data of Macroeconomics Modified for ECON 2204 by Bob Murphy 2016 Worth Publishers, all rights reserved IN THIS CHAPTER, YOU WILL LEARN:... the meaning and measurement of the most important

### Name: Date: 3. Which of the following is a flow variable? A) wealth B) the number unemployed C) government debt D) income

Name: Date: 1. GDP is all of the following except the total: A) expenditure of everyone in the economy. B) income of everyone in the economy. C) expenditure on the economy's output of goods and services.

### Chapter Outline. Chapter 2. National Income Accounting. National Income Accounting

Chapter 2 The Measurement and Structure of the National Economy Chapter Outline National Income Accounting: The Measurement of Production, Income, and Expenditure Real GDP, Price Indexes, and Inflation

### 1. Firms react to unplanned inventory investment by increasing output.

Macro Exam 2 Self Test -- T/F questions Dr. McGahagan Fill in your answer (T/F) in the blank in front of the question. If false, provide a brief explanation of why it is false, and state what is true.

### Chapter 8: The Monetary System, Money Growth and Inflation. Readings: Chapter of Principles of Economics textbook (Mankiw)

Chapter 8: The Monetary System, Money Growth and Inflation Readings: Chapter 29-30 of Principles of Economics textbook (Mankiw) In this chapter, look for the answers to these questions: What assets are

### Refer to Figure 17-1

Chapter 17 1. Inflation can be measured by the a. change in the consumer price index. b. percentage change in the consumer price index. c. percentage change in the price of a specific commodity. d. change

### Adjusting Nominal Values to Real Values

OpenStax-CNX module: m48709 1 Adjusting Nominal Values to Real Values OpenStax This work is produced by OpenStax-CNX and licensed under the Creative Commons Attribution License 4.0 By the end of this section,

### Chapter 20. The Measurement of National Income. In this chapter you will learn to. National Output and Value Added

Chapter 20 The Measurement of National Income In this chapter you will learn to 1. Use the concept of value added to solve the problem of double counting when measuring national income. 2. Describe the

### Econ 202 Final Exam. Douglas, Spring 2006 PLEDGE: I have neither given nor received unauthorized help on this exam.

, Spring 2006 PLEDGE: I have neither given nor received unauthorized help on this exam. SIGNED: PRINT NAME: Econ 202 Final Exam 1. When the government spends more, the initial effect is that a. aggregate

### Measuring National Output and National Income

Measuring National Output and National Income 6 C H A P T E R O U T L I N E Gross Domestic Product Final Goods and Services Exclusion of Used Goods and Paper Transactions Exclusion of Output Produced Abroad

### 6. Real GDP means the value of goods and services is measured in prices. A) current B) actual C) constant D) average

Name: Date: 1. Assume that total output consists of 4 apples and 6 oranges and that apples cost \$1 each and oranges cost \$0.50 each. In this case, the value of GDP is: A) 10 pieces of fruit. B) \$7. C)

### Macroeconomics Instructor: Jen Dinsmore Hanson Homework Assignment Chapter 9. Multiple Choice Questions

Macroeconomics Instructor: Jen Dinsmore Hanson Homework Assignment Chapter 9 Multiple Choice Questions 1. Net domestic product is usually preferred to GDP by economists because net national product A.

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

Study Questions 5 (Money) MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The functions of money are 1) A) medium of exchange, unit of account,

### 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

### FISCAL POLICY* Chapter. Key Concepts

Chapter 15 FISCAL POLICY* Key Concepts The Federal Budget The federal budget is an annual statement of the government s expenditures and tax revenues. Using the federal budget to achieve macroeconomic

### The Keynesian Cross. A Fixed Price Level. The Simplest Keynesian-Cross Model: Autonomous Consumption Only

The Keynesian Cross Some instructors like to develop a more detailed macroeconomic model than is presented in the textbook. This supplemental material provides a concise description of the Keynesian-cross

### 12/03/2012. Currencies and Exchange Rates

The Canadian dollar is one of 100s of different monies. The three big monies: the U.S. dollar, yen, and euro. In February 2007, one Canadian dollar bought 85 U.S. cents. By November 2007, the Canadian

### AP Macroeconomics: Vocabulary. 1. Aggregate Spending (GDP): The sum of all spending from four sectors of the economy.

AP Macroeconomics: Vocabulary 1. Aggregate Spending (GDP): The sum of all spending from four sectors of the economy. GDP = C+I+G+Xn 2. Aggregate Income (AI) :The sum of all income earned by suppliers of

### 31. Gross Domestic Product equals a. Y = C + I G + NX. b. Y = C I + G + NX. c. Y = C + I + G + NX.

GDP Review Questions 13. Gross Domestic Product measures the a. quantity of the goods and services produced in a given year, listed item by item, within a country. b. income of the business sector within

### CHAPTER 7: AGGREGATE DEMAND AND AGGREGATE SUPPLY

CHAPTER 7: AGGREGATE DEMAND AND AGGREGATE SUPPLY Learning goals of this chapter: What forces bring persistent and rapid expansion of real GDP? What causes inflation? Why do we have business cycles? How

### Practiced Questions. Chapter 20

Practiced Questions Chapter 20 1. The model of aggregate demand and aggregate supply a. is different from the model of supply and demand for a particular market, in that we cannot focus on the substitution

### 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.

### 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 ),

### 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 ),

### 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

### 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

### Macroeconomics: Aggregate Demand & Aggregate Supply

RGDP HOSP 2207 (Economics) Learning Centre Macroeconomics: Aggregate Demand & Aggregate Supply The level of real GDP attained when an economy is at full capacity is called the full capacity GDP or potential

### 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

### International Finance

International Finance CHAPTER34 C H A P T E R C H E C K L I S T When you have completed your study of this chapter, you will be able to 1 Describe a country s balance of payments accounts and explain what

### 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

### 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

### Government Budget and Fiscal Policy CHAPTER

Government Budget and Fiscal Policy 11 CHAPTER The National Budget The national budget is the annual statement of the government s expenditures and tax revenues. Fiscal policy is the use of the federal

### PRACTICE- Unit 6 AP Economics

PRACTICE- Unit 6 AP Economics Multiple Choice Identify the choice that best completes the statement or answers the question. 1. The term liquid asset means: A. that the asset is used in a barter exchange.

### Chapter 2 The Measurement and Structure of the National Economy

Chapter 2 The Measurement and Structure of the National Economy Multiple Choice Questions 1. The three approaches to measuring economic activity are the (a) cost, income, and expenditure approaches. (b)

### Velocity. The quantity theory of money 2/18/2016. ECON 3010 Intermediate Macroeconomics

% change from 12 mos. earlier 2/18/2016 U.S. inflation 1960 2012 ECON 3010 Intermediate Macroeconomics 12% 10% 8% % change in GDP deflator Chapter 5 Inflation: Its Causes, Effects, and Social Costs 6%

### Chapter 3 A Classical Economic Model

Chapter 3 A Classical Economic Model what determines the economy s total output/income how the prices of the factors of production are determined how total income is distributed what determines the demand

### Money and Banking Prof. Yamin Ahmad ECON 354 Spring 2007

Money and Banking Prof. Yamin Ahmad ECON 354 Spring 2007 Midterm Exam # 2 Name Id # Instructions: There are two parts to this midterm. Part A consists of multiple choice questions. Please mark the answers

### 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

### MONEY, INTEREST, REAL GDP, AND THE PRICE LEVEL*

Chapter 11 MONEY, INTEREST, REAL GDP, AND THE PRICE LEVEL* Key Concepts The Demand for Money Four factors influence the demand for money: The price level An increase in the price level increases the nominal

### 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

### Problem Set for Chapter 20(Multiple choices)

Problem Set for hapter 20(Multiple choices) 1. According to the theory of liquidity preference, a. if the interest rate is below the equilibrium level, then the quantity of money people want to hold is

### 7. Which of the following is not an important stock exchange in the United States? a. New York Stock Exchange

Econ 20B- Additional Problem Set 4 I. MULTIPLE CHOICES. Choose the one alternative that best completes the statement to answer the question. 1. Institutions in the economy that help to match one person's

### Change Effect on nominal money demand Effect on real money demand Decrease in aggregate price level Shift nominal money demand to left Has no effect

AP Macroeconomics Unit 4 Review Session Money Market 1. Draw the money market, indicating the equilibrium interest rate and quantity. 2. Use the following table to answer this question. Change Effect on

### 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

### Exam 1 Review. Page 1

Exam 1 Review 1. When a firm sells a product out of inventory, GDP: A) increases. B) decreases. C) is not changed. D) increases or decreases, depending on the year the product was produced. 2. An economy's

### Econ 103 Ch 4: Page 88 (page 490 in Economics Define GDP and distinguish between a final good and an intermediate good. Provide examples.

Econ 103 Ch 4: Page 88 (page 490 in Economics) 1. Define GDP and distinguish between a final good and an intermediate good. Provide examples. GDP is the market value of all the final goods and services

### Economics 101 Multiple Choice Questions for Final Examination Miller

Economics 101 Multiple Choice Questions for Final Examination Miller PLEASE DO NOT WRITE ON THIS EXAMINATION FORM. 1. Which of the following statements is correct? a. Real GDP is the total market value

### 2009 CHAPTER 11 Self Study Questions

CHAPTER 11 Self Study Questions 1) The aggregate supply/aggregate demand model is used to help understand all of the following except A) inflation. B) business cycle fluctuations. C) the aggregate value

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

Exam Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Based on our understanding of the Keynesian cross, we know with certainty that an equal

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

### Questions. True/False and Explain

166 CHAPTER 11 (27) Questions True/False and Explain Aggregate Supply 11. At full employment, there is no unemployment. 12. Along the LAS curve, a rise in the price level and all resource prices increase

### Macroeconomics, Fall 2007 Exam 3, TTh classes, various versions

Name: _ Days/Times Class Meets: Today s Date: Macroeconomics, Fall 2007 Exam 3, TTh classes, various versions Read these Instructions carefully! You must follow them exactly! I) On your Scantron card you