Exam #2 study Guide - StudyGuideforTest2 Chapter 6 1. What...

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Study Guide for Test 2 Chapter 6 1. What are the ingredients of economic growth? 2. How do you represent economic growth in the PPF diagram? 3. What is the role of saving in promoting economic growth? Ans.: Economic growth requires investment in capital goods, and Investment cannot occur without saving. See the top of page 120. Chapter 7 Definitions: Disposable Income GDP Investment Nominal GDP Real GDP Real Wage Real interest rate Equations: Expenditure approach: GDP = Consumption + Investment + Government Purchases + (Exports – Imports) Value Added approach: GDP = sum of value added at every establishment. Income Approach: GDP = wages + interest + rent + profit Value Added by a particular producer = Sales Revenue – Cost of goods purchased from other firms Price Index = (Cost of a specified basket of goods in the current year)/(Cost of same basket of goods in the base year) x 100 (See 7B) Inflation rate = percent change in a price index Real Value = (Nominal Value/Price Index) x 100 Percent Change in (a/b) = percent change in a minus percent change in b. Percent change in (a x b) = percent change in a plus percent change in b.
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Real interest rate = nominal interest rate – inflation rate Concepts: 1. What counts and what doesn’t count in the expenditure approach to GDP (7A #1 and #4) 2. How does the CPI differ from the GDP price index? 3. Be able to compute a price index given a table like Exhibit 7-2 on 7B. 4. Understand the meaning of the price index – if the CPI = 120, it means that
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This note was uploaded on 10/20/2010 for the course ECON 101 taught by Professor Ohler during the Fall '08 term at Washington State University .

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Exam #2 study Guide - StudyGuideforTest2 Chapter 6 1. What...

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