ECO 202 Exam 1 Study Flashcards

A set of practice flashcards based on the lecture notes for ECO 202 Exam 1, covering key concepts of GDP, unemployment, inflation, and economic principles.

What does nominal GDP measure?

Nominal GDP measures a country's total economic output without adjusting for inflation.

How is the unemployment rate calculated?

The unemployment rate is calculated as the number of unemployed individuals divided by the labor force, multiplied by 100.

What is the definition of hyperinflation?

Hyperinflation is an extremely high rate of inflation.

In the context of GDP, what is an intermediate good?

An intermediate good is a product used to produce a final good or finished product.

What is cyclical unemployment?

Cyclical unemployment refers to the unemployment resulting from economic downturns.

How does the Consumer Price Index (CPI) affect wage adjustments?

If the CPI understates inflation, workers may not receive wage increases reflective of actual cost increases.

What is the value contributed to GDP by the sale of goods by a used car lot?

Only the final sale price to consumers contributes to GDP, not intermediate sales.

Define structural unemployment.

Structural unemployment occurs when workers' skills do not match job requirements due to changes in the economy.

What are menu costs?

Menu costs are the costs incurred by businesses when they change their prices.

What is the government purchases category in GDP?

Government purchases are expenditures on goods and services by the government.

How is the labor force participation rate calculated?

The labor force participation rate is the labor force divided by the work-eligible population, multiplied by 100.

What is the equation for the velocity of money? (M × V = P × Y)

In this equation, M is the money supply, V is the velocity of money, P is the price level, and Y is real GDP.

What is money illusion?

Money illusion is when people confuse nominal and real values, leading to misinterpretations of their financial situations.

What is the significance of real GDP?

Real GDP adjusts nominal GDP for inflation, providing a more accurate representation of an economy's size.

What indicates a healthy unemployment rate?

A healthy unemployment rate is typically between 4% to 5%.

What does a price index measure?

A price index measures how the prices of a basket of goods change over time.

Define creative destruction.

Creative destruction refers to the process by which new innovations replace outdated industries and jobs.

When do individuals qualify as underemployed?

Underemployed workers are those who are working part-time but desire full-time employment.

What is the formula to calculate inflation from CPI data?

Inflation can be calculated as (CPI this year - CPI last year) / CPI last year × 100.

What happens when the inflation rate is underestimated?

If inflation is underestimated, workers may not receive adequate wage adjustments to maintain their purchasing power.