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spring - midterm review question answers

# spring - midterm review question answers - Ec10 Review...

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Tomorrow’s OH – 5:30 – 9:00 Answers to 55 questions: 1. Gross Domestic Product : The market value of all final goods and services produced within a country in a given time period -also know about GNP 2. Y = C + G + I + NX C = consumption of goods, services by households G = government spending and purchases on real stuff (doesn’t include transfer payments) I = investment in capital, real structures (doesn’t include investment in financial markets) NX = net exports 3. Nominal GDP – GDP measured at current prices [A] 2004 Nominal GDP = P 1 04 * Q 1 04 + P 2 04 * Q 2 04 + … + P n 04 * Q n 04 Real GDP – GDP measured at constant prices [B] 2004 Real GDP = P 1 95 * Q 1 04 + P 2 95 * Q 2 04 + … + P n 95 * Q n 04 4. GDP Deflator: [A]/[B] A measure in change of price level in two compared years 5. Potential Real GDP is an estimate of how much GDP would have been if all factors of economy were utilized at their normal rates -business cycle fluctuations could account for departures for potential GDP 6. Consumer Price Index (CPI), the price level of a basket relative to a base year 7. CPI = (cost of basket in current year)/(cost of basket in base year)*100 8. Inflation rate = (CPI Year 2 – CPI Year 1 )/(CPI Year 1 )*100 9. Y=Af(K,L) %∆Y = %∆A + alpha%∆K + (1-alpha) %∆L 10. A = total factor productivity – What does it mean? All the intangibles: management quality, knowledge, technology, human capital K = capital L = labor, labor hours 11.National Consumption: C = (1 – s)*Y 12.Per capita consumption identity: C/Pop = (1 –s)*(L/Pop) * (Y/L) -this equation shows how much each person is consuming 13. Labor productivity: Y/L, In the long run it is the only way to increase standards of living 14. Three components of per capita consumption so there are three ways to increase standard of living: decrease S of (1-s), increase L of (L/Pop), or increase (Y/L) -a decrease in S limits investment and hurt GDP growth -an increase in L hurts quality of life and there is an upward limir -because we know %∆Y = %∆A + alpha%∆K + (1-alpha) %∆L only increasing (Y/L) is a feasible option 15 and 16. Get there from:

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spring - midterm review question answers - Ec10 Review...

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