ACE 474 – Chapters 1 & 2 Study Guide || A+ GRADED ||
ANSWERED
Why Study Consumption from microeconomic POV and macroeconomic POV - CORRECT
ANSWER micro- reflects overall household well-being and standard of living
macro- 2/3 of GDP comes from consumption, making it a vital driver of our economy
businesses use it to make critical decisions
consumption: micro vs macro
micro relevance
macro relevance - CORRECT ANSWER micro:
how households allocate income to goods and services (consumers trying to maximize their
happiness and satisfaction. consumption responds to income and price)
macro:
total spending by households on goods and services (spending part of GDP, which measures the
total amount of goods and services produced within an economy) (consumption responds to
income and inflation rates)
normal goods
luxury goods
inferior goods - CORRECT ANSWER normal goods= goods for which demand increases as income
increases
luxury goods= a type of normal good for which demand disproportionately increases as income
increases
inferior goods= goods for which demand decreases as income increases
GDP equation - CORRECT ANSWER GDP= C + I + G + NX
C= household consumption/ spending
I= investment (business spending)
, G= government spending (infrastructure)
NX= net exports (exports-imports)
what policy reflects the importance of consumption in GDP?
why do types of goods matter? - CORRECT ANSWER stimulus checks
businesses predict demand and demographic makeup and how change in income will change
consumption pattern
opportunity cost - CORRECT ANSWER involves a tradeoff
the value of the next best alternative you give up when making a choice
what is the opportunity cost of consumption
what is smoothing consumption? - CORRECT ANSWER the potential savings and the interest that
could be earned when you spend. opportunity cost of consumption= you spend so you give up
savings+interest on those savings
smoothing consumption= people try to maintain a stable lifestyle over time, even though their
income changes significantly during different life stages.
define inflation
inflation in simple terms? - CORRECT ANSWER inflation = sustained increase in the general price
level of goods and services in an economy over time
your money buys less than it did before, decreasing purchasing power
how is inflation typically measured? - CORRECT ANSWER inflation is measured by the consumer
price index that tracks the prices of a basket of goods and services commonly purchased by
households
what is the nominal interest rate
ANSWERED
Why Study Consumption from microeconomic POV and macroeconomic POV - CORRECT
ANSWER micro- reflects overall household well-being and standard of living
macro- 2/3 of GDP comes from consumption, making it a vital driver of our economy
businesses use it to make critical decisions
consumption: micro vs macro
micro relevance
macro relevance - CORRECT ANSWER micro:
how households allocate income to goods and services (consumers trying to maximize their
happiness and satisfaction. consumption responds to income and price)
macro:
total spending by households on goods and services (spending part of GDP, which measures the
total amount of goods and services produced within an economy) (consumption responds to
income and inflation rates)
normal goods
luxury goods
inferior goods - CORRECT ANSWER normal goods= goods for which demand increases as income
increases
luxury goods= a type of normal good for which demand disproportionately increases as income
increases
inferior goods= goods for which demand decreases as income increases
GDP equation - CORRECT ANSWER GDP= C + I + G + NX
C= household consumption/ spending
I= investment (business spending)
, G= government spending (infrastructure)
NX= net exports (exports-imports)
what policy reflects the importance of consumption in GDP?
why do types of goods matter? - CORRECT ANSWER stimulus checks
businesses predict demand and demographic makeup and how change in income will change
consumption pattern
opportunity cost - CORRECT ANSWER involves a tradeoff
the value of the next best alternative you give up when making a choice
what is the opportunity cost of consumption
what is smoothing consumption? - CORRECT ANSWER the potential savings and the interest that
could be earned when you spend. opportunity cost of consumption= you spend so you give up
savings+interest on those savings
smoothing consumption= people try to maintain a stable lifestyle over time, even though their
income changes significantly during different life stages.
define inflation
inflation in simple terms? - CORRECT ANSWER inflation = sustained increase in the general price
level of goods and services in an economy over time
your money buys less than it did before, decreasing purchasing power
how is inflation typically measured? - CORRECT ANSWER inflation is measured by the consumer
price index that tracks the prices of a basket of goods and services commonly purchased by
households
what is the nominal interest rate
