Unit II Test Review

• What occurs when resource costs force producers to raise prices in order to maintain their profits?

• Cost-push inflation

• What are the 2 most common methods for calculating GDP?

• Expenditure approach and income approach

• General Motors purchases tires for their new cars. Are these tires counted in GDP? If so, which category? If not, why not?

• No, they’re intermediate goods

• How are GDP and unemployment related? • They are inversely related.

• What are the four phases of the business cycle?

• Peak, recession, trough, expansion

• The full-employment unemployment rate is also known as what?

• The natural rate of unemployment

• If nominal GDP is rising but the price level is falling, what is happening to real GDP?

• It must be increasing

• What is the formula for calculating the real interest rate?

• Nominal interest rate – expected inflation rate

• Name 2 groups of people who are unaffected or helped by inflation.

• Flexible income receivers, borrowers

• What is the formula for calculating GDP through the expenditure approach?

• GDP = C+I+G+(X-M)

• The Chevron station purchases 2 new gas pumps. Are these pumps counted in GDP? If so, which category? If not, why not?

• Yes; investment

• A good or service that is overallocated in a competitive market is said to have what?

• Spillover costs

• Evelyn got laid off from her job as a bank teller when her bank added 2 ATMs. Six months ago, she decided to go back to school full-time in a 2 year program to become a paralegal. Evelyn is presently _____________.

• Not unemployed

• What occurs when too much consumer spending causes prices to rise?

• Demand-pull inflation

• Which category of GDP has been negative for many years?

• Net exports

• What is the largest category of GDP? • Consumption

• Mr. Pitt purchases a new house. Is this purchase counted in GDP? If so, which category? If not, why not?

• Yes; investment

• What measurement of production includes production by Americans in the United States as well as the production of American workers and businesses all over the world?

• Gross National Product

• An economy has 5 people in it. 3 people are working. 1 is not working but looking for a job and 1 is retired. What is the unemployment rate?

• 25%

• Why aren’t intermediate goods counted in calculating GDP?

• Their value is incorporated into the final good’s value. They would be double-counted.

• What are the 3 types of businesses? • Sole proprietorship, partnership, corporation

• We are said to be fully employed when what 2 things are equal?

• Job seekers and job vacancies

• The income households have after all personal taxes are paid is called what?

• Disposable income

• A good or service that cannot denied to non-payers is called what?

• A public good

• Newspaper reporters who are laid off because people find it easier or cheaper to get their news from the internet are called what?

• Structurally unemployed

• Which type(s) of unemployment do(es) not exist when the economy is at full employment?

• Cyclical unemployment

• The difference between actual GDP and full employment GDP is called what?

• GDP gap

• If the natural rate of unemployment is 4% and the current unemployment rate is 7%, what is the GDP gap?

• 6%

• Define real GDP. • Nominal GDP adjusted for changes in the price

level.

• You purchase a new truck that was built in November, 2010. In which year’s GDP does this purchase count? In what category is this purchase counted?

• 2010; investment

• People who are not working and have given up looking for work are called what?

• Discouraged workers

• What is the name of the price index used by the government each month to calculate inflation?

• The Consumer Price Index

• If banks anticipate that inflation will increase, what will happen to the nominal interest rate?

• It will rise.

• Name 2 groups of people who are hurt by inflation.

• Savers, lenders, fixed income receivers

• Why are government transfer payments not counted in GDP?

• They don’t produce anything.

• You buy a $50 Best Buy gift card for your dad’s birthday present. Is this purchase counted in GDP? If so, which category? If not, why not?

• No; financial transaction

• Which corporation decided this week to stop producing their catalog after 47 years?

• JC Penney