Economics Flashcards Quiz 3

Questions and Answers

What is 'the market value of final goods and services produced within the borders of the US during the period of one year'?

gross domestic product

Based on the 'experience approach', what is the largest component of GDP?

consumption

What is disposable personal income?

income of households minus personal taxes

What does the term 'nominal GDP' refer to?

GDP data expressed in current prices and not adjusted for inflation Signup and view all the answers

What does the term 'real GDP' refer to?

GDP data adjusted for changes in the price level Signup and view all the answers

If real GDP is growing slower than the population, then the standard of living is __. If real GDP is growing faster than the population, then the standard of living is _.

falling; rising Signup and view all the answers

Which one of the following is omitted from the value of GDP?

leisure time Signup and view all the answers

If the total population is 200 million, the civilian labor force is 100 million, and 90 million are employed, what is the unemployment rate?

10% Signup and view all the answers

Since 1960, the labor force participation rate has been for men and for women.

falling; rising Signup and view all the answers

The full employment ('natural') rate of unemployment includes structural unemployment and:

frictional unemployment Signup and view all the answers

What type of unemployment does Charlotte, a construction worker unable to find work due to a recession, face?

cyclical unemployment Signup and view all the answers

What type of unemployment does Wilbur, a replaced sanitation worker, face?

structural unemployment Signup and view all the answers

During a business recession, real GDP will , employment will _, and unemployment will increase.

fall; fall Signup and view all the answers

What does inflation mean?

the general price level is rising Signup and view all the answers

What does the GDP price index measure?

the prices paid for all final goods and services Signup and view all the answers

What does the CPI measure?

the prices paid by typical family or households Signup and view all the answers

If the CPI value for 2014 is 237, what does this indicate about prices since the base period (1982-1984)?

the prices paid on average by a typical family have risen 137% since 1982-84 Signup and view all the answers

In 2014, if Steve's nominal income rose by 4% and the price level rose by 2%, what can we conclude about Steve's real income?

2% Signup and view all the answers

What is the real interest rate if short-term interest rates are 3% and the inflation rate is 2%?

1% Signup and view all the answers

What is the term for the period between the high point of real GDP in December 2007 and the low point in June 2009?

recession Signup and view all the answers

The long run growth rate in real GDP in the US is %. This reflects in two percent productivity growth plus a % population growth.

3; 1 Signup and view all the answers

What was the unemployment rate for the US economy in 2006 and 2007?

5% Signup and view all the answers

What was the national unemployment rate during the 2008-09 great recession?

10% Signup and view all the answers

According to the core rate of inflation, what items are excluded?

food and energy Signup and view all the answers

To deal with the current recession, the central bank has _ interest rates and added liquidity to the financial system. The federal government has __ spending making the deficit much larger.

decreased; increased Signup and view all the answers

Study Notes

Gross Domestic Product (GDP)

GDP measures the market value of all final goods and services produced within the US borders in a year.
Based on the experience approach, the largest component of GDP is consumption, which includes total final demands for consumption, investment, government spending, and net exports.
Nominal GDP is reported in current prices without adjusting for inflation, whereas real GDP adjusts for price level changes.
Disposable personal income is calculated as the income of households minus personal taxes.

Economic Indicators

If real GDP grows slower than the population, the standard of living falls; if it grows faster, the standard of living rises.
GDP values do not include leisure time, reflecting limitations in measuring economic welfare.
The unemployment rate is determined by the ratio of unemployed individuals to the civilian labor force.

Labor Market Trends

Since 1960, the labor force participation rate has been declining for men and increasing for women.
The full employment ("natural") rate of unemployment includes both structural and frictional unemployment.
Types of unemployment:
- Cyclical unemployment occurs during economic downturns, exemplified by Charlotte, a construction worker affected by a recession.
- Structural unemployment, as seen with Wilbur, results from technological changes.

Economic Conditions

During a business recession, real GDP and employment decline, while unemployment rises.
Inflation signifies a general increase in the price level, assessed through measures like the Consumer Price Index (CPI) and GDP price index.

Price Level Measures

The CPI reflects prices paid by typical households and indicates changes in cost of living.
The GDP price index represents prices for all final goods and services.

Real Income and Interest Rates

If nominal income rises but price levels increase at a slower rate, real income increases. For instance, Steve's real income rose by 2% when his nominal income increased by 4% with a 2% inflation rate.
The real interest rate is derived by subtracting the inflation rate from the nominal interest rate.

Business Cycles and Growth Rates

The US experienced a recession from December 2007 to June 2009, with a peak in real GDP in December 2007.
The long-run growth rate of real GDP is 3%, a result of 2% productivity growth and 1% population growth.
The national unemployment rate during the great recession peaked at 10% and has since fallen below 6%.

Inflation and Economic Policy

The core rate of inflation excludes food and energy prices, providing a more stable measure of inflation trends.
To counter economic downturns, the central bank has decreased interest rates and increased liquidity in the financial system, while the federal government has raised spending, contributing to a larger deficit.

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Description

Test your knowledge of key economic concepts with this quiz based on flashcards from Economics Quiz 3. Focus on understanding terms related to Gross Domestic Product (GDP) and their implications in national income accounting. Perfect for students looking to reinforce their learning and grasp important NIPA concepts.