MBA510

Macroeconomics
Learn for quiz1

Chapter-5

Definition
(1) Macroeconomics (2) CPI (3) Price level (4) Base year (5) Inflation (6) Real income (7)
Unemployment rate (8) Employment rate (9) Labor force participation rate (10) Discouraged
workers (11) Frictional unemployment (12) Structural unemployment (13) Natural rate of
unemployment (14) Frictional unemployment (15) Cyclical unemployment (16) Discouraged
workers (17) Full employment

Conceptual Questions
(18)Distiguish between macroeconomics and microeconomics? (19) What does
macroeconomics focus? PTPD
1.Macroeconimices Problems
2.Macroeconomics theories
3.Macroeconomices polices
4.Different view of how economics work,
(20) What are the macroeconomic problems?IIUL
Higher
1.Higher inflation rate
2.higher interest rate
3.higher unemployment rate
4.low economic growth
(21) What are the macroeconomic policies?FM
1. Fiscal policies: Fiscal policies deal with changes in government expenditure(cost) and taxes.
Exm:a proposal to cut taxes is fiscal policies measure.
2. Monetary policies: monetary policies deal with changes in money supply.
Exm: a proposal to decrease the rate of growth of the money supply is a monetary policies
measure.
(22) What are the macroeconomic organizational categories?
Three type Category:PSE
1.P-Q Category:
2.Self regulating economics instability category.
3.effective-ineffective category.

(23) What is fiscal policy?(look at 21) (24) What is monetary policy?(look at 21)
(25) What is the limitation of CPI?
A consumer price index (CPI) measures changes in the price level of a market basket of consumer
goodsand services purchased by households.

1.Prices of different products rise at different rates.

2. Price indexes have difficulty measuring changes in quality.
3. Price indexes have difficulty including new technology.

(26) Write down the formula for converting dollar from one year to another? (27) Who are
unemployed?
Unemployment occurs when people who are without work are actively seeking paid work
(28) What are the reasons for unemployment?
1.Job loser
2.Job leaver
3.re-entrant
4.new entrant

(29) What are the different types of unemployment?

Frictional Unemployment: the unemployment which exists in any economy due to people
being in the process of moving from one job to another.
Structural Unemployment: Structural the unemployment due to structural changes in the
economics that eliminates some job to and create another jobs for which the unemployment are
unqualified.
Natural Unemployment:Unemployment caused by frictional and structural fsctors in the
economy.NUr=fur+sur

Chapter-6

Definition
(1) GDP
Gross Domistic Product:Value of final good and services produce within the border of the
country.
(2) (2) Final good (3 Intermediate good (4) Double counting (5) Per capita GDP (6)
Consumption (7) Investment (8) Inventory investment (9) Government purchases (10)
Government transfer payment (11) Net exports (12) depreciation (13) Statistical
discrepancy (14) NDP (15) Real GDP (16) Economic growth (17) Business cycle

Conceptual Questions
(16) What are the different measures for GDP?
Three approach in Measure:
1.Expenduture
2.Income
3.Value added
(17) What does GDP omit?
1. Govt transfer payments
2. Financial transactions
3.Share Market
4.Black Market

(18) What are the expenditures in a real world economy?

1.Household sector, 2.Business Sector(i) , 3.Govt Sector(G),4.Forign Sector(x-M)
(19) What are the components of consumption expenditure?
1.Durable goods(Lasting more then three years) 2.Non durable goods(lasting less more then
three years 3.Service(car repair) Doctor, entertainment
(20) What are the components of national income?
National Income: the total amount of money earned within a country.
National Income=Compensation of employee+Propritor income+Renatl income+netinterest
(21) What do you mean by compensation of employees? (22) What do you mean by proprietors
income? (23) What do you mean by corporate profit? (24) What do you mean by rental income?
(25) What do you mean by net interest? (26) What do you mean by personal income?

IUB Name:
MBA510
Quiz1 ID:
Time: 20 minutes
Answer any 10 questions

(1) Define CPI. What is the limitation of CPI? (2) Define inflation (3) What do you mean by
real income? (4) What do you mean by cyclical unemployment (5) What do you mean
by full employment (6) What do you mean by inventory investment? (7) What are the
reasons for unemployment? (8) What do you mean by real GDP? (9) ) What do you
mean by depreciation? (10) What do you mean by business cycle? (11) What are the
expenditures in a real world economy? (12) What does GDP omit? (13) What are the
components of consumption expenditure? (14) What are the different measures for
GDP? (15) What are the components of national income?

gross domestic product

the total market value of all final goods and services produced annually in a country
double counting
counting a good more than once in computing GDP
consumption
expenditures made by the household sector
investment
expenditures made by the business sector
government purchases
expenditures made by the government sector; do not include government transfer
payments
export spending
the amount spent by the residents of other countries for goods producers in the United
States
import spending
the amount spent by Americans for foreign produced goods
base year
in general, a benchmark year chosen as a point of reference for comparison; used in
computing real GDP
real GDP
gross domestic product that has been adjusted for price changes; GDP measured in
base-year, or constant prices
price index
a measure of the price level, or the average level of prices
consumer price index (CPI)
the most widely cited price index
aggregate demand curve
a curve that shows the quantity of goods and services that buyers are willing and able to
buy different price levels
aggregate supply curve
a curve that shows the quantity of goods and services that producers are willing and able
to supply at different price levels
unemployment rate
the percentage of the civilian labor force that is unemployed
employment rate
the percentage of the non institutional adult civilian population that is employed
How do you find the GDP of an economy?
1) find the market value for each good produced
2) sum up the market values
Why does GDP only count final costs?
because it doesn't want to double count; it only wants to count goods that have reached
their final user
What does GDP omit?
- illegal goods and services
- transactions of legal goods and services with no record
-some non market goods and services
- sales of used goods
- stock transactions and other financial transactions
- government transfer payments
Why does GDP omit illegal goods and services? Give an example.
For something to be included in the calculations of GDP, that something has to be capable
of being counted, illegal trades are not capable of being counted because there is no
record of the transaction because it is illegal. (ex: a person buys an illegal drug)
Why does GDP omit transactions of legal goods and services with no record?
Give an example.
some people ask to be paid in cash instead of check so when people are paid in cash
there is no written record of them getting paid so it can not count into the GDP (ex: a
gardner works for cash, no sales receipts exists)

Why does GDP omit some non market goods and services? Give an example.
sometimes people don't get paid for their goods and services so the value of their goods
and services can not be counted into the GDP (ex: a family member cooks, cleans, and
mows the lawn for their family)

Why does GDP omits the sales of used goods? Give an example
.
if you buy something used it doesn't enter into the current years statistics because the car
was counted when it was originally produced
(ex: someone buys a used car)

Why does GDP omit stock transactions and other financial transactions? Give an
example.

GDP is a record of goods and services produced annually in an economy; a person who
buys stock is not buying a product but they are buying an ownership of a company
(ex: someone buys 100 shares of stock in a company)
Why does GDP omit government transfer payments? Give an example.
when the government makes payments to someone, it often does not get a good or
service in exchange
(ex: someone receives a social security check)

difference between GDP and GNP:

GNP measures the total market value of final goods and services produced by US
citizens, no matter where in the world they reside; GDP is the total market value of final
goods and services produced within the boarders of the United States, no matter who
produces them. So GDP only applies inside the boarder of the U.S. while GNP can apply
worldwide.

how is GDP measured?

consumption + investment + government purchases + export spending - import spending

example of consumption
TV sets, phones, clothes, lamps, cars, ect. bought by the household sector
example of investment
tools, machines, and factories
example of government purchases
paper, pens, tanks, planes, ect. bought by the government

what does per capita GDP equal?

GDP divided by Population
what are the two variables of GDP?
price and quantity
what does GDP equal?
price in current year x quantity in current year
what does real GDP equal?
price in base year x quantity in current year
what does percentage change in price equal?
(price in later year - price in earlier year / price in earlier year) x 100
how do you calculate CPI?
calculate the goal dollar expenditure on the market basket in the base year and the goal
dollar expenditures on the market basket in the base year; divide the total current-year-
expenditures by the total base-year expenditures and multiply by 100
Percentage change in CPI =
(CPI (in later year) - CPI (in earlier year))/CPI (in earlier year) x 100
civilian labor force =
unemployment persons + employed persons
unemployment rate =
unemployed persons/ civilian labor force
employment rate =
employed persons/ non-institutional adult civilian population