REVIEW: ECONOMIC GROWTH AND INSTABILITY – CHAPTER 7
NAME:_____________________________________
You should be able to answer:
1) What is the difference between GDP and per-capita GDP? In what context is GDP more
relevant, and in what context is per-capita GDP more relevant?
2) What are the four stages of the business cycle?
3) What is the difference between durable goods and nondurable goods? Which are more
affected by recessions? Give examples of both.
4) What are the three types of unemployment? Give examples of each.
5) What is the “natural rate of unemployment,” and why has this rate declined over the
past 25 years?
6) What are the two types of inflation? Explain both types, making sure to note what
happens to output, unemployment/employment, supply, and money supply (where
applicable).
7) What relationship exists between real income, nominal income, and the inflation rate?
What relationship exists between the real interest rate, the nominal interest rate, and
the inflation premium?
8) Who is helped by unexpected inflation? Who is hurt by unexpected inflation? Who is
unaffected by unexpected inflation?
9) Complete the chart.
Nominal Interest Rate
7%
Inflation Premium
2%
Real Interest Rate
a)
3%
b)
1.3%
c)
2.2%
4%
Nominal Income
$63,000
Price Level
1.05
Real Income
d)
$80,000
e)
$75,000
f)
1.1
$120,000
Answers: a) 5%
b) 1.7%
c) 1.8%
d) $60,000
e) 1.07
f) $132,000