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Macroeconomics Study Set 45

Business

Quiz 7 :

Measuring the Aggregate Economy

Quiz 7 :

Measuring the Aggregate Economy

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What is inflation and how do we measure it? Which prices does each of the major price indexes actually measure? How can a price index be used to convert nominal output into real output?
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Inflation is a sustained rise in the price level.We measure it using a variety of price indexes, including the PPI, GDP Deflator, CPI, and PCE deflator.The PPI, or the producer price index, measures the selling prices received by domestic producers.The GDP Deflator is an index of the average price of the components in total output (or GDP), relative to a base year.The CPI, the consumer price index, measures the prices of a fixed basket of consumer goods.The PCE deflator is a measure of consumer prices that allows yearly changes in the basket of goods.
Real output is the total amount of goods and services produced, adjusted for price-level changes.Nominal output is the total amount of goods and services measured at current prices.The two are related via the following formula: real output = (nominal output price index) × 100.That is, real output can be found by dividing nominal output by a price index and then multiplying the result by 100.

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What are personal consumption expenditures?
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Personal consumption expenditures are payments by households for goods and services

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In economics it is important to know the distinction between flow concepts and stock concepts.Explain this distinction, and give examples of each.
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A stock represents a quantity of something at a given point in time.An example is your bank balance.Your bank statement indicates a balance in your account, as of the date the statement was issued.This is your stock of money in that account at that moment in time.Another example of a stock concept is your current weight.A flow concept is associated not with a point in time, but with a time period.An example is your income.When a person states their income, it must be with reference to a time period to be meaningful.An income of $800 per week is very different from $800 per month.GDP and GNP are flow concepts.They are measures of aggregate output per year.

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Why might per capita GDP comparisons of living standards between countries be misleading? What do economists do to avoid some of the problems?
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What is gross private investment?
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If nominal GDP grew at 4% per year over the past four years, can we be sure that everyone is better off now? Explain your answer.
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What is the difference between GDP and GNP? How are they related?
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Define real and nominal GDP and explain why the growth of real GDP is more important to society than the growth in nominal GDP?
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What are the four expenditure components of GDP?
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Why is the definition of profit the key to explaining the equality between aggregate income and aggregate production?
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Without national income accounting there would not be any macroeconomics.Evaluate this statement.
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How can GDP be calculated without "double counting"?
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What is the difference between Gross Domestic Product (GDP) and Gross National Product (GNP) ? What is the difference between Gross Domestic Product (GDP) and Net Domestic Product (NDP)?
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What is the distinction between gross domestic product (GDP) and net domestic product (NDP)? In theory, which is a superior measure of aggregate output?
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Why will calculating GDP using the expenditure approach give you the same value as using the income approach? What types of data would be needed for each approach?
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What is meant by "GDP"? What are the four expenditure components of GDP and what is included in each of these components?
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What is national income? What are its four components?
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Aggregate income is divided into four categories.They are (1) Compensation of Employees, (2) Rents, (3) Interest and (4) Profits.Briefly describe what is and is not included in each category.
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Purchases of stocks and bonds in economic terminology are not investment.Explain why this statement is true.
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There are two possible ways to avoid counting intermediate goods (i.e., double counting) in calculating GDP.Identify each of them and discuss each briefly.
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