Question
1. What is GDP? 2. What is the difference between real GDP and nominal GDP? 3. You are in an economy with a major good
1. What is GDP?
2. What is the difference between real GDP and nominal GDP?
3. You are in an economy with a major good that has seen a substantial price decrease. Assuming no changes in supply or consumption, what is the effect of this price decrease towards real GDP?
4. Given our historically high rates of inflation, would you estimate our potential GDP is above, at, or below our current GDP?
5. Describe the measurement and impact of potential GDP.
6. What is the effect of a recessionary gap?
7. What is the difference between the Consumer Price Index (CPI) and the GDP Deflator?
8. Describe the effects when planned aggregate expenditure is not in equilibrium with actual GDP.
9. Describe and provide examples of the 3 types of unemployment.
10. Explain the difference between the unemployment rate and the labour force participation rate.
11. Provide a potential explanation for the changes in aggregate demand as a result of inflation.
12. Provide an example of a price ceiling and a price floor. What is the effect of a price ceiling when it is below the point of market equilibrium?
13. A system is said to be in equilibrium when the price intersects our supply and demand lines. Graph the impact of a negative supply shock, such as the supply of available oil decreasing, to a system that is currently in equilibrium. What will the initial market conditions be? What will occur to re-establish equilibrium?
14. Consider the following system (10 points):
= ((1 ) ) + + +
Where AE is planned aggregate expenditure, c is average consumption rate, t is our net tax rate, m is our propensity to import, Y is GDP, Io/Go/Xo are planned Business/Government/Export Expenditure.
If our potential GDP is 1500 and our AE variables are:
Consumption: 0.9
Net Tax Rate: 0.1
Import Rate: 0.11
Business Investment: 150
Government Expenditure: 100
Exports: 50
What is our current level of equilibrium GDP? What type of gap is this, and what are the market effects to both price level and employment? What is our current government budget balance? What level of additional government expenditure will reach potential GDP? Graph the current AE line and your new proposed AE line with equilibrium and potential GDP identified. What is the government's budget balance after your expenditure?
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