Principles of Macroeconomics

Study Guide for 2nd test

Chapter 5

What is the definition of GDP?

What is the definition of GNP?

What does GDI stand for?

What is the relationship between GDP and GDI?

What is the difference between GDP and GNP?

What goods and services are included in GDP?

What goods and services are excluded from GDP?

How is GDP calculated?

What is Nominal GDP? Real GDP? How to calculate them?

How to construct the GDP deflator?

Application 1. If Frank decides to walk to South Georgia College instead of driving to the college, how would Frank’s decision affect U.S. GDP? (Answer)

Application 2. The following table contains information about an economy that produces only pens and books. The base year is 2001. 

What are the values of nominal GDP for 2000, 2001 and 2002?

What are the values of real GDP for 2000, 2001, and 2002?

What are the GDP deflators for 2000, 2001 and 2002?

(Answer)

Chapter 6

 How does Bureau of Labor Statistics define these concepts? Adult population, employed, unemployed, labor force, not in the labor force, unemployment rate, and labor force participation rate.

 What are frictional unemployment, structural unemployment, cyclical unemployment, natural rate unemployment, and full employment?

 What is consumer basket?

How to compute the cost of the consumer basket?

What does CPI stand for?

How to compute CPI?

How to compute the rate of inflation from CPI or GDP deflator?

Is CPI a perfect measure of cost of living? Why?

What does Phillips curve describe?

Application 3. The following table shows the prices of beef and pork in a hypothetical country named Tigerland.

 Suppose that the consumer basket consists of 150 pounds of beef, 100 pounds of pork, and the base year is 2001.

What are the costs of the consumer basket for 2000, 2001, and 2002?

What is the CPI for 2000, 2001 and 2002?

What is the inflation rate for 2001 and 2002?

(Answer)

Application 4. A gallon of milk was $0.32 in 1920. CPI for 1920 was 20 and CPI for 2006 was 202. What is $0.32 worth in 2006’s dollar?

(Answer)

Application 5. Nikki is 25 years old. She has graduated from college and started looking for a job. She found a job yesterday and will report to work next month. How would this affect the unemployment rate and the labor force participation rate?

(Answer)

Chapter 7

What is growth trend?

What are the 4 phase of a business cycle?

What cause business cycle?

What is primary demand? What is secondary demand?

Can a business cycle be predicted?

What are the major events in the U.S. economic history?

What are the states of economy?

Application 6. During recession, what would the employment level, income level, unemployment level be?

(Answer)