UKY ECO 202 EXAM #1 QUESTIONS WITH
CORRECT ANSWERS
Gross domestic product: - ANSWER total market value of all final goods and
services produced in a country
GDP is roughly equal to? - ANSWER the total income income in an economy
4 components of GDP? - ANSWER 1. consumption
2. investments
3. government purchases
5. net exports
Consumption: - ANSWER spending by households on goods and services
3 categories of consumption? and an example for each - ANSWER -services:
nails
-nondurable goods: food
-durable goods: car
3 types of investments? - ANSWER 1. business fixed investment: spending by
firms on factories, office buildings, machinery, etc.
2. residential investment (house)
3. changes in business inventories:
-inventories: goods that have been
produced but not yet sold
(car dealership's lot of cars for sale)
How are inventories counted? - ANSWER in year produced, not year sold
per capita = - ANSWER per person
Shortcomings of GDP? (4) - ANSWER -GDP doesn't include value of
leisure/health
-GDP doesn't include NEG. effect of production (externalities... like pollution)
-GDP doesn't include NEG. social effects (crime)
-underground economy (weed & babysitting)
Real GDP measures? - ANSWER quantity change
GDP deflator measures? - ANSWER price-level
, Nominal GDP: - ANSWER the value of final goods and services evaluated at
current-year prices
Real GDP: - ANSWER the value of final goods and services evaluated at base-
year prices
Problems with measuring the unemployment rate? (5) - ANSWER -unemployment
vs. not in the labor force
-part-time vs. full-time employment
-measurement error
-underground economy
-stigma of unemployment
3 types of unemployment? - ANSWER -frictional unemployment
-structural unemployment
-cyclical unemployment
Frictional unemployment: - ANSWER short-term unemployment that arises from
the process of matching workers with jobs.
*short-term
Structural unemployment: - ANSWER unemployment that arises from a
mismatch between the skills/attributes of workers and the requirements of jobs.
*skills/business
Cyclical unemployment: - ANSWER unemployment caused by a business cycle
recession
*recession
Full employment: - ANSWER only remaining unemployment is structural and
frictional
Natural rate of unemployment: - ANSWER the normal rate of unemployment,
CONSISTING OF frictional unemployment + structural unemployment
Price level: - ANSWER a measure of the average prices of goods and services in
the economy
Inflation rate: - ANSWER the % change in the price level from one year to the
next
Consumer price index: - ANSWER an average of the prices of the goods and
services purchased by the typical urban family of four
nominal interest rate: - ANSWER the states interest rate on a loan
CORRECT ANSWERS
Gross domestic product: - ANSWER total market value of all final goods and
services produced in a country
GDP is roughly equal to? - ANSWER the total income income in an economy
4 components of GDP? - ANSWER 1. consumption
2. investments
3. government purchases
5. net exports
Consumption: - ANSWER spending by households on goods and services
3 categories of consumption? and an example for each - ANSWER -services:
nails
-nondurable goods: food
-durable goods: car
3 types of investments? - ANSWER 1. business fixed investment: spending by
firms on factories, office buildings, machinery, etc.
2. residential investment (house)
3. changes in business inventories:
-inventories: goods that have been
produced but not yet sold
(car dealership's lot of cars for sale)
How are inventories counted? - ANSWER in year produced, not year sold
per capita = - ANSWER per person
Shortcomings of GDP? (4) - ANSWER -GDP doesn't include value of
leisure/health
-GDP doesn't include NEG. effect of production (externalities... like pollution)
-GDP doesn't include NEG. social effects (crime)
-underground economy (weed & babysitting)
Real GDP measures? - ANSWER quantity change
GDP deflator measures? - ANSWER price-level
, Nominal GDP: - ANSWER the value of final goods and services evaluated at
current-year prices
Real GDP: - ANSWER the value of final goods and services evaluated at base-
year prices
Problems with measuring the unemployment rate? (5) - ANSWER -unemployment
vs. not in the labor force
-part-time vs. full-time employment
-measurement error
-underground economy
-stigma of unemployment
3 types of unemployment? - ANSWER -frictional unemployment
-structural unemployment
-cyclical unemployment
Frictional unemployment: - ANSWER short-term unemployment that arises from
the process of matching workers with jobs.
*short-term
Structural unemployment: - ANSWER unemployment that arises from a
mismatch between the skills/attributes of workers and the requirements of jobs.
*skills/business
Cyclical unemployment: - ANSWER unemployment caused by a business cycle
recession
*recession
Full employment: - ANSWER only remaining unemployment is structural and
frictional
Natural rate of unemployment: - ANSWER the normal rate of unemployment,
CONSISTING OF frictional unemployment + structural unemployment
Price level: - ANSWER a measure of the average prices of goods and services in
the economy
Inflation rate: - ANSWER the % change in the price level from one year to the
next
Consumer price index: - ANSWER an average of the prices of the goods and
services purchased by the typical urban family of four
nominal interest rate: - ANSWER the states interest rate on a loan
