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Questions and Answers
What is the formula to calculate GDP growth?
What are the main sources of economic growth?
What is a broader concept of measuring economic growth that considers welfare objectives?
What is a business cycle?
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What is the peak phase of a business cycle?
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What characterizes a recession?
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What type of unemployment occurs when people transition from one job to another?
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What is the result of frictional unemployment?
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Why is frictional unemployment considered inevitable?
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What is a possible remedy for frictional unemployment?
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Which type of unemployment occurs when people are not actively seeking a job?
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Why does the unemployment rate not reflect the actual rate of unemployment?
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What is demand-pull inflation caused by?
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What is the result of an increase in aggregate spending when the economy is at full employment?
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What type of inflation is caused by an increase in per unit costs of production?
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What happens when aggregate demand increases beyond the economy's capacity to produce?
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What is another term for demand-pull inflation?
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What is the term for those who are willing and able to work, but are not institutionalized and are not employed or seeking work?
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What is the formula to calculate the unemployment rate?
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What is the term for the proportion of a country's working age population that is working or actively seeking work?
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What category includes persons who are not seeking work, either because they do not want jobs or have given up looking for jobs, homemakers, and adult full-time students?
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What is the term for all persons 16 years or older who are able to work, including those in the labour force and those not in the labour force?
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What is the term for the number of persons who are willing and able to work, including the employed and unemployed?
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What happens to the Labour Force Participation Rate (LFPR) during an economic recession?
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What is the term for the number of persons who are employed and unemployed?
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What is the category for those who are in correctional and mental health institutions?
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What is the term for the proportion of unemployed persons to the total labour force?
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What is the relationship between the value of money and the price level?
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How does inflation affect savers?
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Who benefits from inflation?
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What is the central bank's objective regarding inflation?
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What is the relationship between inflation and output?
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Study Notes
Measurement of Economic Growth
- GDP growth can be calculated using the formula:
- GDP growth = (Real GDP this year - Real GDP last year) / Real GDP last year x 100.
- Real GDP growth from 2021 to 2022 was 10%, indicating economic expansion.
- Real GDP growth from 2022 to 2023 was -5.5%, indicating economic contraction.
- Key sources of economic growth include land, labor, capital, and entrepreneurship, alongside factors that enhance productivity.
- Productivity improvements arise from advancements in health, education, technology, and the business environment.
- Per capita real GDP is defined as real GDP divided by the population, reflecting welfare better than overall real GDP growth.
- If the population grows faster than real GDP, per capita GDP can fall, indicating a decline in living standards.
Business Cycles: An Introduction
- Business cycles represent fluctuations in economic activity, reflected in output and employment.
- Four phases of a typical business cycle:
- Peak: highest economic activity before a downturn.
- Recession: a period of declining economic activity lasting six months or longer.
- Trough: the lowest point of economic activity before recovery.
- Recovery: a phase where economic activity increases after a trough.
Phases of the Business Cycle
-
Peak:
- Indicates a local maximum in economic activity.
- Reflects full employment and real GDP near full productive capacity.
- Increased spending may lead to rising prices as output reaches limits.
-
Recession:
- Follows the peak, characterized by decreasing economic activity.
- Defined by a decline in real output and unemployment rising due to economic contraction.
Unemployment Types
-
Frictional Unemployment:
- Occurs when individuals transition between jobs or seek new employment.
- Seen as a natural and somewhat desirable aspect of the labor market, allowing for better job matching.
-
Structural Unemployment:
- Arises from mismatches between skills and job requirements or geographical dislocation.
-
Cyclical Unemployment:
- Linked to the economic cycle, increasing during recessions and decreasing during recoveries.
Inflation Theories
-
Demand-Pull Inflation:
- Occurs when aggregate demand exceeds supply capabilities, leading to price increases.
-
Cost-Push Inflation:
- Results from rising production costs, such as supply shocks, leading to higher prices.
Labour Market Considerations
-
Labour Force:
- Comprises individuals aged 16 and older, willing and able to work, including both employed and unemployed individuals.
-
Working Age Population:
- Includes all individuals able to work, distinguishing between those in the labour force and those not seeking work.
-
Unemployment Rate:
- Calculated as the number of unemployed divided by the labor force, providing a key indicator of economic health.
-
Labour Force Participation Rate (LFPR):
- Proportion of working-age population actively engaged in the labor market.
- Typically lower during economic downturns due to discouraged job seekers.
Effects of Inflation
- Rising price levels diminish the purchasing power of money, impacting savers and the real value of savings.
- Inflation benefits debtors as they repay loans with less valuable currency, creating concerns for creditors.
- Policymakers prioritize price stability to mitigate the redistribution effects of inflation on income and wealth.
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Description
Quiz on measuring economic growth using GDP, real GDP, and growth rates, including calculations and interpretations.