ECON 2305 Final Exam Review

ECON 2305 Final Exam Review - ECON 2305 Final Exam Review...

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Unformatted text preview: ECON 2305 Final Exam Review Spring 2011 Exam Makeup Saturday, May 7, 2011 at 2:00-5:00pm Bring Pencil and Calculator Chapters 10-21 excluding Chapter 14 75 Questions Chapter 10-Measuring a Nation’s Income • Gross Domestic Product (GDP) o Measures the total income of everyone in the economy, and also measures the total expenditure on the economy’s outputs of goods and services • Circular Flow Diagram o Households own the factors of production (sell/rent them for income) • Buys and consumes goods and services Firms buy/hire factors of production and use them to produce goods and services • Sells goods and services • Know items included and excluded from GDP o GDP does not include intermediate goods • Expenditure components of GDP and National Income Identity o Y = C + I + G + NX (national income identity) o Y = C + I + G + (X-M) Consumption (C) – total spending by households on goods and services • Housing costs o Renters, consumption includes rent payments o Homeowners, consumption includes the imputed rental value of the house but not the purchase price or the mortgage payments Investment (I) – total spending on goods that will be used in the future to produce more goods (smallest but has the largest impact) • Capital equipment – tools, machines • Structures – factories, office buildings • Inventories – goods produced but not yet sold Government purchases (G) – total spending on goods and services purchased by government at the federal, state, and local levels 1 [Type text] [Type text] [Type text] • Excludes transfer payments – social security, unemployment insurance (Medicaid, Medicare) Net exports (NX) – exports less imports (19% of GDP, usually negative) • Exports (X) – foreign spending on the economy’s goods and services • Imports (M) – portions of the C, I, and G that are spent on goods and services produced abroad • Difference between intermediate and final goods and services o Intermediate goods Used as components or ingredients in production of other goods o Final Goods Intended for the end user (GDP only includes final goods!) • Calculate nominal GDP o Values output using current prices (not corrected for inflation) o ( Quantity of A X price of A) + (quantity of B X price of B) Price of a & b use current years • Calculate real GDP o Values output using price of a base year (corrected for inflation) Problem will tell which year is the base year (use this to calculate the GDP for each year) o ( Quantity of A X price of A) + (quantity of B X price of B) Price of good a & b is base years • Calculate GDP deflator o GDP deflator = 100 x (nominal GDP / real GDP) o To measure the economy’s inflation, compute the percent increase in the GDP deflator from one year to the next Chapter 11-Measuring the Cost of Living • Calculate CPI o 100 x(cost of basket | current year)/(cost of basket | base year) • Calculate Rate of Inflation o IR =(CPI this year – CPI last year)/(CPI last year) x 100%...
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This note was uploaded on 09/28/2011 for the course ECON 2305 taught by Professor Pollyhardee during the Spring '09 term at University of Houston.

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ECON 2305 Final Exam Review - ECON 2305 Final Exam Review...

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