AP Macro Unit 2 Review

Why are full time volunteers considered outside the labor force?

they aren’t looking for a job

How do you find real GDP with nominal GDP and the GDP deflator

nominal GDP/ GDP deflator

Why are inventories considered a part of investment spending?

they are a businesses unsold goods that can later be sold

How do you find the inflation rate with the consumer price index data from two consecutive years?

( later year- early year/ early year ) x 100

Why does the formula for calculating the unemployment rate use the labor force rather than the working age population?

there are people in the labor force who aren’t in the working age population

Why are new graduates considered frictionally unemployed?

They are in a transition period of their life, not working immediately

How would an increase in the number of discouraged workers affect the size of the labor force and the unemployment rate?

both would be decrease because less workers equal smaller labor force and unemployment rate goes down too because they coexist

Why does the consumer price index overstate the true rate of inflation?

market basket ignores consumers switching to cheaper alternatives and quality decrease

How does an increase in imports affect net exports?

decrease (x-m)

How have prices changed if nominal GDP doubles, but real GDP states the same?

the output of goods remained the same but inflation impacted the prices

How are workers who lose their job during a recession classified?

cyclically unemployed

How does an increase in the number of people looking for work effect the unemployment rate?

increase unemployment rate because more people enter labor force: (unemployment/ labor force) x 100

How is total spending related to total income according to the circular flow model?

total spending is equal to total income

Why are discouraged workers considered outside of the labor force?

they aren’t looking for a job

Why is a house built in 1980 and sold in 2005 not counted as part of the gross domestic product (GDP) in 2005?

it isn’t built in the present year, its old

How do you find the unemployment rate with the total number of employed and unemployed"?

(unemployed/ labor force) x 100

How is consumer spending defined?

the total amount spend on goods and services

How does the real GDP of a country differ from nominal GDP of a country?

real GDP is adjusted for inflation while nominal GDP is measured using current prices

How do you use the value added approach of calculating gross domestic product(GDP)?

sales - intermediate goods

How have prices changed if the GDP deflator fails?

all of price would decrease

How is gross domestic product(GDP) defined?

the total value of all final goods and services produced in a year

Why do product improvements cause the CPI to overstate the inflation rate?

consumers will prefer the new product, these offer value to the goods

How have prices changed if the consumer price index increases?

prices have gone up

Why might the unemployment rate be criticized as a measurement of the health of the economy?

some reasons or unemployment have nothing to do with the economy (recession)

Why are graduates considered frictionally unemployed?

they are in a transition period of their life, not working

How would an increase in imports affect gross domestic product(GDP)?

GDP decreases

How do you calculate the unemployment rate with the number of unemployed and the labor force?

(unemployment/ labor force) x 100

How does an increase in consumer spending affect gross domestic product(GDP)?

GDP rises

How is structural unemployment defined?

someone who doesn’t meet job requirements (ai, machinery)

How does an increase in investment spending affect the capital stock of a country?

the capital stock would increase because the investment spending uses some of the resources saved

How could the rate of frictional unemployment be reduced?

people in a transitional period getting a job

How will the inflation rate change if nominal GDP increases faster than real GDP?

inflation rate will increase because inflation impacts real GDP

How are the prices of a specific goods and services purchased by consumers measured?

measured using the consumer price index(CPI)

Why would imports be considered a “leakage” from the circular flow model?

they reduce the amount of money in the economy

How do you calculate gross domestic product(GDP)?

C+I+G+(X-M)

How do you find the real GDP with the nominal GDP and the GDP deflator?

(nominal GDP/ GDP deflator) x 100

How does an increase in imports affect net exports, real GDP, and real income?

real GDP and net exports would decrease while real income would increase

How do you calculate the unemployment rate with the total number of employed and unemployed?

1. employed + unemployed= labor force

2. (unemployed/labor force) x 100= unemployment rate

How do you calculate the cyclical rate of unemployment with the actual rate of unemployment?

1. unemployment rate - frictional unemployment

2. unemployment rate - structural unemployment

How does a decline in investment spending affect the actual rate of unemployment and the natural rate of unemployment?

if there is a decline in the spending on tools, buildings, schools then there is a rise in unemployment

How would an increase in the number of discouraged workers affect the unemployment rate?

would cause a decrease in the unemployment rate because discouraged workers aren’t looking for a job

How do you calculate the consumer price index(CPI) with the market basket of a given year and the market basket of a base year?

(given year/ base year) x 100

How do you calculate the inflation rate of a country with the consumer price index(CPI) values of two consecutive years?

(later year - early year/ early year) x 100

What is the formula for calculating the change in real wages?

nominal GDP- inflation rate