question
Law of Demand
answer
Quantity demanded increass when price falls, holding all else constant
question
Non-Price Determinants of Demand (Shifts)
answer
-Number of buyers
-Change in income
-Compliments & Substitues
-Taste/Preference
-Expectations
-Change in income
-Compliments & Substitues
-Taste/Preference
-Expectations
question
Law of Supply
answer
Quantity supplied rises when price rises, holding all else constant
question
Non-Price Determinants of Supply
answer
-Input Prices
-Technology
-Number of Sellers
-Future Expectations
-Technology
-Number of Sellers
-Future Expectations
question
Equilibrium
answer
Qs = Qd
question
Surplus
answer
Qs > Qd
question
Shortage
answer
Qs < Qd
question
Gross Domestic Product (GDP)
answer
-Market value of all final goods & services produced within a country in a given time period
-Measures total income and total expenditure
-Total Income = Total Expenditure
-Measures total income and total expenditure
-Total Income = Total Expenditure
question
Uses of GDP
answer
-Measuring standards of living
-Measuring economic growth long term
-Measuring business cycles short term
-Measuring economic growth long term
-Measuring business cycles short term
question
GDP Equation
answer
Y = C + I + G + NX
Y = Output
C = Consumption
I = Investment
G = Government Spending
NX = Net Exports
Y = Output
C = Consumption
I = Investment
G = Government Spending
NX = Net Exports
question
Consumption (C)
answer
-Spending on households on goods and ervices
Ex. Cost of Rent (Renter), Imputed Rent (Homeowner)
Ex. Cost of Rent (Renter), Imputed Rent (Homeowner)
question
Investment (I)
answer
Spending on goods used in future to produce more goods (capital goods)
question
Business Capital
answer
Non-residential structures, equipment, intellectual property
question
Residential Capital
answer
Homeowners personal residence or a landlord's building
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Inventory Accumulations
answer
Goods produced but are not yet sold
question
Government Spending (G)
answer
-Goods and Services purchased at all government levels
-Excludes transfer payment (unemployment insurance, social security, etc.)
-Excludes transfer payment (unemployment insurance, social security, etc.)
question
Net Exports (NX) (Exports - Imports)
answer
-Exports: Foreign spending on economy's G&S
-Imports: Portions of C,I,G spent on G&S produced abroad
-Imports: Portions of C,I,G spent on G&S produced abroad
question
Nominal GDP
answer
Output valued at current dollar prices, is NOT corrected for inflation
question
Real GDP
answer
Output valued at base year prices, IS corrected for inflation
question
GDP Deflator
answer
EQUATION: (Nominal GDP / Real GDP) x 100
-Measures overall level of prices
-Measures current level prices relative to price level in the base year
-Inflation = Percentage increase in GDP from year to year
-Measures overall level of prices
-Measures current level prices relative to price level in the base year
-Inflation = Percentage increase in GDP from year to year
question
Real GDP per Capita
answer
the main indicator of the average person's standard of living
question
Gross National Product (GNP)
answer
GDP + (Income earned by citizens - Income earned by foreigners)
question
National Domestic Product (NDP)
answer
GDP - Depreciation
question
Net National Product (NNP)
National Income (NI)
National Income (NI)
answer
NDP - (Income earned by citizens abroad + Income earned by foreigners)
question
Personal Income (PI)
answer
NI - Retained Earnings - Indirect business taxes
question
Disposable Personal Income (DPI)
answer
Personal Income - Personal Income Tax
question
Per capita Income (PCI)
answer
NI / Population
question
Consumer Price Index (CPI)
answer
-Surveys to find typical consumers "shopping basket"
-Finds prices and weight of items in the basket as well as energy costs
-Finds prices and weight of items in the basket as well as energy costs
question
How to Calculate CPI
answer
-Compute cost of basket
-Choose the base year and compute
EQUATION:
CPI = Cost of Basket (Current Year) / Cost of Basket (Base Year) * 100
-Choose the base year and compute
EQUATION:
CPI = Cost of Basket (Current Year) / Cost of Basket (Base Year) * 100
question
Inflation Equation
answer
(CPI current year - CPI previous year) / CPI previous year] * 100
OR
% Increase in GDP from one year to next
(Final Value - Starting Value) / Starting Value
OR
% Increase in GDP from one year to next
(Final Value - Starting Value) / Starting Value
question
Typical Shopping Basket contents
answer
Housing, Transportation, Food, Medical Care, Education, etc.
question
Issues with the CPI
answer
-Substitution Bias
-Introduction of New Goods
-Unmeasured Quality Change
-Introduction of New Goods
-Unmeasured Quality Change
question
Substitution Bias
answer
-Consumers instinctively substitute towards cheaper goods but the CPI does not account for this because of the fixed basket
question
Introduction of New Goods
answer
-Prices are overstated because CPI does not account for sales/discounts
-New goods increase variety which allows consumers to find goods more suitable to their needs
-New goods increase variety which allows consumers to find goods more suitable to their needs
question
Unmeasured Quality Change
answer
-Improvement in the uality of the goods in the basket increase the value of each dollar
-Quality is hard to measure
-Leads to CPI overstating the increased cost of living
-Quality is hard to measure
-Leads to CPI overstating the increased cost of living
question
CPI vs GDP Deflator
answer
-Imported consumer goods: Included in CPI, not in GDP Deflator
-Capital Goods: Not in CPI, Included in GDP Deflator
-Capital Goods: Not in CPI, Included in GDP Deflator
question
Correction of Today's Dollars
answer
Today's Dollars = Amount in Year T Dollars x (CPI Today / CPI Year T)
question
Nominal Interest Rate
answer
-Interest rate NOT corrected for inflation
-Rate of growth in dollar value of a deposit or debt
-Rate of growth in dollar value of a deposit or debt
question
Real Interest Rate
answer
-Corrected for inflation
-Rate of growth in purchasing power of a deposit or debt
EQUATION: Real r = Nominal r - Inflation
r = interest rate
-Rate of growth in purchasing power of a deposit or debt
EQUATION: Real r = Nominal r - Inflation
r = interest rate
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