ECON 213 CH 5 QUESTIONS AND
VERIFIED ANSWERS
classical view of econ - ANSWER-role of government is to facilitate the functioning of free markets
(smaller role of government)
Keynesian view of econ - ANSWER-active role of government to make sure objectives are achieved
(bigger role of government)
3 ways to predict business cycles before they occur - ANSWER-1) Chicago Fed National Activity Index
2) conference board leading economic index
3) yield curve
what is a yield curve - ANSWER-the relationship between interest rates for bonds and the length of time
until the bond's maturity date
what type of slope does a yield curve normally have (positive or negative) - ANSWER-normally has a
positive curve bc investors demand high interest rates the longer their money is tied up
what happens in an inverted curve - ANSWER-interest rates on short-term bill exceed long-term bill
bonds
how to determine the shape of a yield curve - ANSWER-calculate the difference in interest rates between
a long-term and short-term bond
what does it mean if a treasury spread is negative (difference in interest rates between long-term and
short-term bond) - ANSWER-interest rates on short-term bills exceed those on long-term bonds which
results in a recession
national activity index - ANSWER-a weighted average of 85 indicators of national economic activity which
was established by the federal reserve bank of Chicago
circular flow diagram - ANSWER--businesses buy and sell products
-households buy products, sell resources, supply labor
what does a counterclockwise arrow in a circular flow diagram represent - ANSWER-money
GDP - ANSWER-total market value of FINAL (not used goods) goods/services produced by resources in a
country in a given year
GNP - ANSWER-takes into account the goods and services produced abroad using resources supplied by
US citizens excluding the value of goods/services produced in US by foreign-owned businesses
GDP-PPP - ANSWER-GDP adjusted for differences in cost of living in different countries
how to calculate GDP using the expenditure approach - ANSWER-Consumption(biggest portion of GDP) +
Investment + Government spending + (exports -imports)
VERIFIED ANSWERS
classical view of econ - ANSWER-role of government is to facilitate the functioning of free markets
(smaller role of government)
Keynesian view of econ - ANSWER-active role of government to make sure objectives are achieved
(bigger role of government)
3 ways to predict business cycles before they occur - ANSWER-1) Chicago Fed National Activity Index
2) conference board leading economic index
3) yield curve
what is a yield curve - ANSWER-the relationship between interest rates for bonds and the length of time
until the bond's maturity date
what type of slope does a yield curve normally have (positive or negative) - ANSWER-normally has a
positive curve bc investors demand high interest rates the longer their money is tied up
what happens in an inverted curve - ANSWER-interest rates on short-term bill exceed long-term bill
bonds
how to determine the shape of a yield curve - ANSWER-calculate the difference in interest rates between
a long-term and short-term bond
what does it mean if a treasury spread is negative (difference in interest rates between long-term and
short-term bond) - ANSWER-interest rates on short-term bills exceed those on long-term bonds which
results in a recession
national activity index - ANSWER-a weighted average of 85 indicators of national economic activity which
was established by the federal reserve bank of Chicago
circular flow diagram - ANSWER--businesses buy and sell products
-households buy products, sell resources, supply labor
what does a counterclockwise arrow in a circular flow diagram represent - ANSWER-money
GDP - ANSWER-total market value of FINAL (not used goods) goods/services produced by resources in a
country in a given year
GNP - ANSWER-takes into account the goods and services produced abroad using resources supplied by
US citizens excluding the value of goods/services produced in US by foreign-owned businesses
GDP-PPP - ANSWER-GDP adjusted for differences in cost of living in different countries
how to calculate GDP using the expenditure approach - ANSWER-Consumption(biggest portion of GDP) +
Investment + Government spending + (exports -imports)
