Economics Chapter 3 Flashcards

Questions and Answers

How is real GDP measured?

Total of all final goods and services produced in the U.S. valued at a base year's prices.

GDP calculated using current year prices is often called?

Nominal GDP uses the current year's prices to measure GDP.

GDP calculated using base year prices is called?

Real GDP uses base year prices to take out inflationary effects.

GDP divided by the number of people in the country is called?

GDP per capita. Signup and view all the answers

What happened to the real GDP growth rate during the Great Recession of the late 2000s?

Negative growth rates. Signup and view all the answers

In the last few years in the U.S., have imports been greater than or less than exports?

Imports have been greater than exports. Signup and view all the answers

A man in Washington, DC buys a Volvo directly from Sweden for $30,000. Which of the following is true?

Both A and C are true. Signup and view all the answers

The purchase of the Volvo for $30,000 in the previous question changes GDP by how much?

<ol start="0"> <li></li> </ol> Signup and view all the answers

Why are transfer payments not included in GDP?

They do not correspond to the production of goods or services. Signup and view all the answers

Calculate the unemployment rate if there are 160,000 people of working age, 150,000 have jobs, and 5,000 are looking for work.

3.2% Signup and view all the answers

If the labor force increases but the number of unemployed stays the same, what happens to the unemployment rate?

It decreases. Signup and view all the answers

How does going back to school affect the labor force?

It decreases the number in the labor force. Signup and view all the answers

Inflation means that which of the following is true?

Average price levels are increasing. Signup and view all the answers

CPI uses what to calculate price levels?

A typical basket of goods. Signup and view all the answers

Which definition is the best one for GDP?

GDP measures how much is produced in a country in a given year. Signup and view all the answers

How is the unemployment rate calculated?

Unemployed divided by labor force. Signup and view all the answers

Inflation measure is , while deflation measure is .

The increase in price of a typical bundle of goods / the decrease in price of a typical bundle of goods. Signup and view all the answers

Does GDP include the purchase of a haircut?

True Signup and view all the answers

Which situation represents inflation in an economy?

Prices of most goods and services increase by 4%. Signup and view all the answers

What was the peak yearly unemployment rate around the Great Recession?

9.6% Signup and view all the answers

What was the average annual increase in real GDP from the Great Recession to 2016?

Between 1.6 and 2.6%. Signup and view all the answers

How much does paying a carpenter $10,000 to build a garage raise GDP?

$10,000. Signup and view all the answers

How much does purchasing $3,000 worth of materials to build a garage raise GDP?

$3,000. Signup and view all the answers

How much does cutting down a tree to build a garage raise GDP?

Nothing. Signup and view all the answers

How much do housing transactions raise GDP?

$175,000. Signup and view all the answers

If the unemployment rate decreases, which of the following is true?

Both A and B are true. Signup and view all the answers

If a country is importing $1 million worth of goods and exporting $800,000, then net exports are?

-$200,000. Signup and view all the answers

If the unemployment rate in the United States is 4%, what is likely happening to real GDP?

Real GDP is likely growing at expected rates. Signup and view all the answers

At which levels of inflation should the country be concerned?

Around 5%. Signup and view all the answers

Which measure is the best indicator of the average individual's well-being?

Real GDP per capita. Signup and view all the answers

What does China's real GDP measure not consider when determining citizens' well-being?

Population of the country. Signup and view all the answers

Why is the purchase of a share of stock not included in GDP?

It does not correspond to the production of a good or service. Signup and view all the answers

What component of GDP is the government attempting to increase by sending tax refunds?

Consumption. Signup and view all the answers

What component of GDP would increasing spending on highways and roads affect?

Government spending. Signup and view all the answers

What does the BLS report signal about the economy if 200,000 jobs are added and the unemployment rate drops to 4.7%?

Adding jobs is a good sign for the economy. Signup and view all the answers

Were inflation levels leading up to the Great Recession below or above the typically targeted rate of around 2%?

Above. Signup and view all the answers

Which answer best describes the annual growth rates during the Great Recession?

Real GDP growth rates dipped below 0. Signup and view all the answers

What year did unemployment rates drop below 2008 levels after the Great Recession?

<ol start="2015"> <li></li> </ol> Signup and view all the answers

Study Notes

GDP Measurement

Real GDP measures total final goods and services produced in the U.S. at base year prices.
Nominal GDP is calculated using current year prices, reflecting inflation effects.
Real GDP removes inflationary impacts by using base year prices, providing a clearer economic performance picture.

GDP Per Capita

GDP per capita is the total GDP divided by the country's population, indicating average economic output per person.

Economic Events

During the Great Recession (late 2000s), the real GDP growth rate experienced negative growth.
U.S. net exports were negative, with exports at 13% and imports at 15.7%.

Import Impact on GDP

A purchase of an imported good (e.g., a Volvo) increases consumption but also increases imports, leaving GDP unchanged due to offsetting effects.

Transfer Payments and GDP

Transfer payments, like Social Security, are excluded from GDP calculations as they do not correspond to new goods or services.

Labor Force and Unemployment

The unemployment rate equals the number of unemployed people divided by the labor force, including those employed or actively seeking jobs.
If unemployment persists while the labor force grows, it implies more people are finding jobs, effectively lowering the unemployment rate.
Discouraged workers returning to school decrease the labor force count.

Inflation and Price Levels

Inflation represents a rise in average price levels, while deflation refers to a decrease.
The Consumer Price Index (CPI) uses a standard basket of goods to gauge price changes; core CPI excludes food and energy.

GDP Contributions and Transactions

GDP increases through consumption when services are purchased, such as paying a carpenter, but not through unpaid DIY activities.
Only new constructions count towards GDP; resale of existing assets does not contribute to economic measures.

Economic Indicators and Rates

The average annual increase in real GDP post-Great Recession was between 1.6% and 2.6%.
The peak unemployment rate during the Great Recession reached 9.6%.
Full employment is considered around 4% unemployment, with real GDP expected to grow at standard rates under these conditions.

Concerns and Measurements

Inflation rates above 2%, such as 5%, signal concerning price increases impacting wealth, prompting government intervention.
Real GDP per capita is a more accurate reflection of individual well-being as it accounts for inflation and population.

Stock Market Transactions

Stock purchases do not enter GDP calculations as they do not reflect the production of goods or services.

Government Actions

Tax refunds aim to boost consumption, while infrastructure spending affects government expenditure components of GDP.

Economic Recovery Signals

Job additions and declining unemployment rates are positive indicators of economic health.
Inflation rates exceeded the target during the Great Recession, with 2.9% in 2007 and 3.8% in 2008, then plummeting in 2009.

Post-Recession Unemployment Trends

Unemployment rates only dropped below 2008 levels in 2015 after years of high persistence post-Recession.

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Description

Test your knowledge with these flashcards on Chapter 3 of Economics, focusing on the concepts of real GDP and nominal GDP. Learn how GDP is measured and the significance of base year pricing in economic analysis.