Gross Domestic Product can be measured as the sum of:
consumption, investment, government purchases, and net exports
The “basket” on which the CPI is based is composed of:
products purchased by the typical consumer
Demand curves represent:
willingness to buy
All other things equal, an increase in the demand for loanable funds would MOST likely be caused by a ___ :
increase in government borrowing
If Susan decides to change the oil in her car herself instead of having Speedy Lube change the oil for her, GDP ___ :
falls
T/F: The unemployment rate is computed using the number of unemployment insurance claims filed
False
T/F: Each adult included in the unemployment statistics is classified as employed, unemployed, or not in the labour force, and include those 16 and above
True
T/F: Statistics Canada gathers data on unemployment and employment.
True
Economic growth can be especially fast:
- for countries playing catch-up with countries that already have high real GDP per capita - for relatively poor countries if the convergence hypothesis holds true - if the country is able to benefit from adopting the technological advances already used in advanced countries
Union offer benefits to its member causes Structural Unemployment
False
Firm offer a higher wage to lower the worker turnover would cause Structural Unemployment
True
Increase in unemployment insurance benefit would cause Structural Unemployment
True
An inferior good is a good for which demands:
falls as income rises
Gold is an example of:
natural resources
According to the efficiency wage theory, which of the following is not the reason why firms may want to pay higher wages than the market wage?
- reduce worker effort - increase worker effort - reduce worker quality - increase worker turnover
Labour Productivity can be measured by:
GDP/Labour Force
The value of net exports equals the value of:
Export minus import
Curtis is a stockbroker. He has had several job offers, but he has turned them down because he thinks he can find a firm that better matches his tastes and skills.What type of unemployed is Curtis
Curtis is frictionally unemployed
John is an accountant. He has looked for work for some time, but no accounting firms are hiring.What type of unemployed is John
John is structurally unemployed
Real GDP per person is $25,000 in Aquilonia, $10,000 in Nemedia, $15,000 in Shem, and $20,000 in Zexa. Saving per person is $2,000 in all four countries. Other things equal, we would expect that:
Nemedia will grow the fastest.
Which of the following would decrease the demand (shift the curve to the left) for beer?
The price of a substitute, wine, falls.
The increase in demand would cause supply to:
neither rise nor fall, although quantity supplied would increase.
The purchase of plant and equipment by Ford is part of:
investment
Gross Domestic Product would include which of the following?
legal consulting fee.
Inflation can be measured by which of the following?
GDP deflator || Consumer price index
Suppose your incomes rises from $29,000 to $76,000 while the CPI rises from 102 to 130. Your standard of living has likely:
Risen
The amount of unemployment that are persistent and that the economy normally experiences is known as:
the natural rate of unemployment.
According to Statistics Canada, a husband who chooses to stay home and take case of the household is:
not in the labour force.
The demand curve for loanable funds slopes:
downward, because the quantity of loanable funds demanded falls when the price of borrowing money rises.
The crowding-out effect is ....
the negative effect of government budget deficits on private investment spending
Investment spending is undertaken when the rate of return is:
higher than the equilibrium interest rate.
A decrease in the demand for loanable funds would MOST likely be caused by a ___ :
decrease in perceived business opportunities.
A business will want a loan when:
rate of return of operation > interest rate.
In an open economy:
savings of foreigners may support investment spending
Name two reasons why the unemployment rate is an imperfect measure of joblessness.
If a person is out of job but is very confidence on finding a job and is just waiting for a better offer. Some people claim to be looking for work just to collect Employment Insurance benefits. Also, it can be any of the following: Discouraged searchers, Marginally attached worker and Underemployment.
Does the minimum wage cause much unemployment in the market for accountants? Why?
No, because the market wage of accountants is much higher than minimum wage.
What are the components of expenditure in the GDP calculation? Provide an example of each.
Consumption: Buying a mobile phone. Investment: A café purchasing an espresso machine to make espresso for customers. Government Purchase: National defense spending. Net Export: Canada exporting oil to the US.
Consider an economy in which existing capital is being used intensively, shortages in labor and goods markets are developing, and costs are rising. Which stage of the business cycle is the economy experiencing? Why?
Boom. During a boom, most labor is already employed, therefore there are shortages in the labor market. For the same reason, wages would increase (costs are rising).
If workers and firms negotiate a wage increase based on their expectation of inflation, who gains or loses if actual inflation turns out to be higher than expected? Why?
The worker lost since his real wage is lower now when the actual in ation turns out to be higher than expected
Which would have a greater impact on the CPI: a 20% increase in the price of a luxury watch or a 20% increase in the price of new cars? Why?
A 20% increase in the price of new cars. It is because a car would has a higher weight in the basket of CPI that represent the consumption bundle of a typical consumer.
If the federal government eliminates taxes on interest earned from savings, how will the equilibrium interest rate and the equilibrium quantity of loanable funds be affected?
If households are no longer taxed on income earned from interest on savings, savings will increase, and the supply curve for loanable funds will shift to the right. The equilibrium interest rate will decrease, and the equilibrium quantity of loanable funds will increase
What happens to the company's value added when it outsources the work? What happens to value added in the economy as a whole?
A firm's value added is equal to the payments it makes to its employees plus its profits. In other words, it is equal to its total revenues minus the value of its purchases of inputs from other firms. If a firm now lays off its maintenance workers and contracts out its maintenance to an outside firm (suppose total expenditure is unchanged), its measured value added falls. When this company's value added falls, the value added of some outside firm rises by the same amount (assuming that total expenditure is unchanged). In this case, total value added in the economy is unaffected.
Unemployment Rate Formula
Unemployed / Labour Force
Labour force Formula
unemployed + employed
Marginal propensity to save (MPS) Formula
Change in Savings / Change in Disposable income
Aggregate consumption spending (C) Formula
Autonomous Consumption + Marginal Propensity to Consume × Income
Multiplier Formula
1 / 1 - Marginal Propensity to Consume
Increase in Real GDP Formula
nitial Increase in Spending x 1 / (1-Marginal Propensity to Consume)
Decrease in Output Required Formula
Current Output − Potential Output
Increase in Taxes Needed Formula
Decrease in Output Required / Marginal Propensity to Consume
Output Gap Formula
Potential GDP − Real GDP
Change in Government Spending Formula
Output Gap / K (Multiplier)
How to develop a linear equation of the consumption function
y = mx + by is the Consumer Spending, x is the Disposable Income, m is the slope (MPC), b is the intercept (Autonomous Consumption).
The accelerator principle
states that planned investment spending by firms is positively related to the expected growth of real GDP.
Planned investment spending
depends on a combination of factors, including the market interest rate, wealth, and expected disposable income.
Aggregate supply
represents the total output firms are willing to produce at a given price level
Short-Run Aggregate Supply (SRAS)
the relationship between the price level and the quantity of real GDP supplied in the short run, holding other factors constant.
Aggregate demand (AD)
signifies the total spending by households, firms, and the government on goods and services within an economy.
Aggregate output
total quantity of goods and services produced by all firms within an economy over a specific period, typically measured in terms of Gross Domestic Product (GDP).
Aggregate wealth
total value of assets and possessions owned by individuals, businesses, or a nation within an economy at a specific point in time
Aggregate demand will decrease if?
the public becomes more pessimistic.
When the aggregate price level rises the SRAS curve will shift...
to the left.
If interest rates are low, people are willing to..
consume more and save less, all else being equal.
A decrease in consumers' spending would likely shift the short-run aggregate supply curve...
to the left.
A decrease in government spending on healthcare is likely to shift the curve to the short-run aggregate supply
left
In the long run, the economy is
self-correcting
income–expenditure equilibrium
is when planned spending matches the actual level of output or income in the economy, resulting in neither a surplus nor a deficit.
Cyclically adjusted budget balance
estimate of what the budget balance would be if real GDP were equal to potential output.
Contractionary fiscal policy
aims to reduce aggregate demand to control inflationary pressures or cool down an overheated economy.
Automatic stabilizers
features of the economic system, such as progressive taxation and unemployment benefits, that automatically help stabilize fluctuations in economic activity by increasing government spending or reducing taxes during economic downturns, and vice versa during periods of economic expansion.
budget balance
difference between government revenues (such as taxes and other sources of income) and government expenditures over a specific period, typically a fiscal year, indicating whether the government has a surplus (revenues exceed expenditures), a deficit (expenditures exceed revenues), or is in balance (revenues equal expenditures).
Real GDP
a measure of the total value of all goods and services produced within a country's borders, adjusted for inflation or deflation. It represents the economy's output after removing the effects of price changes, providing a more accurate reflection of changes in the quantity of goods and services produced over time.
Public debt
government debt held by individuals and institutions outside the government.
Government purchases
expenditures made by the government on goods and services, such as infrastructure projects or defense spending,
Government transfers
involve payments made by the government to individuals or other entities without the expectation of receiving goods or services in return, such as social security benefits or unemployment insurance.