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 Nations Income Gross Domestic Product (GDP) o Measures the total income of everyone in the economy, and also measures the total expenditure on the economys 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 economys 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 economys 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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ECON 2305 Final Exam Review - ECON 2305 Final Exam Review...

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