Econ 214 Exam 1 Actual set with
Questions and correct/verified Answers
Gross Domestic Product (GDP) - ANSWER--GDP is the sum of income
-measures the total income earned in the economy
-economic downturn can be seen in falling GDP
-GDP equals the total amount spent by households in the market for goods and services and also equals
the total wages, rent, and profit paid by firms in the markets for the factors of production
inflation/ deflation - ANSWER-the rate at which average prices are rising or falling
unemployment - ANSWER-the percentage of the labor force that is out of work
retail sales - ANSWER-total spending at stores
trade defecit - ANSWER-imbalance of trade between the US and the rest of the world
microeconomics - ANSWER-the study of how individual households and firms make decisions and how
they interact with one another in markets
macroeconomics - ANSWER-the study of the economy as a whole
GDP measures two things at once - ANSWER--the total income of everyone in the economy
-the total expenditure on the economy's output of goods and services
income must _______ expenditure - ANSWER-equal
circular flow diagram - ANSWER-households buy goods and services from firms and firms use their
revenue from sales to pay wages to workers, rent to landowners, and profit to firm owners
GDP can be computed two ways - ANSWER--by adding up the total expenditures by households
-by adding up the total income paid by firms
products excluded from GDP - ANSWER--items produced and sold illicitly
-most items that are produced and consumed at home and never enter the marketplace
GDP only includes the value of final goods - ANSWER-because the value of the intermediate good is
already included in the prices of the final good
GDP does not include items produced in the past - ANSWER-example: when a person sells their car to
someone else
GDP measures the value of production within the geographic confines of a country - ANSWER-items are
only included in the nation's GDP if they are produced domestically
GDP time period - ANSWER-GDP interval is usually a year or a quarter (3 months)
components of GDP - ANSWER-Y= C+I+G+NX
, C=consumption
I=investment
G= government purchases
NX= net exports
consumption - ANSWER-spending by households on goods and services with the exception of new
housing
investment - ANSWER-the purchase of goods that will be used in the future to produce more goods and
services
government purchases - ANSWER-measure spending on goods and services by local, state, and federal
government
(includes the salaries of government workers and expenditures on public works)
transfer payments - ANSWER-alter household incomes but they do not reflect the economy's production
(not counted as government purchases)
net exports - ANSWER-equal the foreign purchases of domestically produced goods (exports) minus the
domestic purchases of foreign goods (imports)
if the total spending rises from one year to the next, at least one of two things must be true - ANSWER--
the economy is producing a larger output of goods and services
-goods and services are being sold at higher prices
nominal GDP - ANSWER--the production of goods and services at current prices
-uses current prices to value the economy's production of goods and services
real GDP - ANSWER--used to remove the effect of price changes and obtain a measure of the amount
produced
-the production of goods and services valued at constant prices
-uses constant base year prices to value the economy's production of goods and services
GDP deflator - ANSWER--reflects only the prices of goods and services
-GDP deflator= (nominal GDP/ real GDP) x (100)
-measure that economists use to monitor the average level of prices in the economy and thus the rate of
inflation
inflation rate - ANSWER--the percentage change in some measure of the price level from one period to
the next
-inflation rate in year 2= (GDP deflator in yr 2 - GDP deflator in yr 1) / (GDP deflator in yr 1) x (100)
Questions and correct/verified Answers
Gross Domestic Product (GDP) - ANSWER--GDP is the sum of income
-measures the total income earned in the economy
-economic downturn can be seen in falling GDP
-GDP equals the total amount spent by households in the market for goods and services and also equals
the total wages, rent, and profit paid by firms in the markets for the factors of production
inflation/ deflation - ANSWER-the rate at which average prices are rising or falling
unemployment - ANSWER-the percentage of the labor force that is out of work
retail sales - ANSWER-total spending at stores
trade defecit - ANSWER-imbalance of trade between the US and the rest of the world
microeconomics - ANSWER-the study of how individual households and firms make decisions and how
they interact with one another in markets
macroeconomics - ANSWER-the study of the economy as a whole
GDP measures two things at once - ANSWER--the total income of everyone in the economy
-the total expenditure on the economy's output of goods and services
income must _______ expenditure - ANSWER-equal
circular flow diagram - ANSWER-households buy goods and services from firms and firms use their
revenue from sales to pay wages to workers, rent to landowners, and profit to firm owners
GDP can be computed two ways - ANSWER--by adding up the total expenditures by households
-by adding up the total income paid by firms
products excluded from GDP - ANSWER--items produced and sold illicitly
-most items that are produced and consumed at home and never enter the marketplace
GDP only includes the value of final goods - ANSWER-because the value of the intermediate good is
already included in the prices of the final good
GDP does not include items produced in the past - ANSWER-example: when a person sells their car to
someone else
GDP measures the value of production within the geographic confines of a country - ANSWER-items are
only included in the nation's GDP if they are produced domestically
GDP time period - ANSWER-GDP interval is usually a year or a quarter (3 months)
components of GDP - ANSWER-Y= C+I+G+NX
, C=consumption
I=investment
G= government purchases
NX= net exports
consumption - ANSWER-spending by households on goods and services with the exception of new
housing
investment - ANSWER-the purchase of goods that will be used in the future to produce more goods and
services
government purchases - ANSWER-measure spending on goods and services by local, state, and federal
government
(includes the salaries of government workers and expenditures on public works)
transfer payments - ANSWER-alter household incomes but they do not reflect the economy's production
(not counted as government purchases)
net exports - ANSWER-equal the foreign purchases of domestically produced goods (exports) minus the
domestic purchases of foreign goods (imports)
if the total spending rises from one year to the next, at least one of two things must be true - ANSWER--
the economy is producing a larger output of goods and services
-goods and services are being sold at higher prices
nominal GDP - ANSWER--the production of goods and services at current prices
-uses current prices to value the economy's production of goods and services
real GDP - ANSWER--used to remove the effect of price changes and obtain a measure of the amount
produced
-the production of goods and services valued at constant prices
-uses constant base year prices to value the economy's production of goods and services
GDP deflator - ANSWER--reflects only the prices of goods and services
-GDP deflator= (nominal GDP/ real GDP) x (100)
-measure that economists use to monitor the average level of prices in the economy and thus the rate of
inflation
inflation rate - ANSWER--the percentage change in some measure of the price level from one period to
the next
-inflation rate in year 2= (GDP deflator in yr 2 - GDP deflator in yr 1) / (GDP deflator in yr 1) x (100)
