MBA Econ FINAL Exam Questions & Answers 2024/2025
What does GDP measure? Four Components of GDP? - ANSWERSTotal income of everyone in the economy and total expenditure on goods and services.
- Total expenditure= total income (because every dollar spent somewhere goes to someone)
- Four comp...
What does GDP measure? Four Components of GDP? - ANSWERSTotal income of everyone in the
economy and total expenditure on goods and services.
- Total expenditure= total income (because every dollar spent somewhere goes to someone)
- Four components of GDP:
1. Consumption (largest segment)
2. Investment
3. Government Spending (2nd largest segment)
4. Net Exports (smallest segment)
Y= C + I + G + NX
Consumption - ANSWERSTotal spending of households on goods and services.
- Housing cost: for renters it includes rent payments, and for homeonwers it includes the imputed rental
value of the house but not the purchase price or mortage payments.
Investment - ANSWERSTotal spending on goods that will be used to produce future goods.
- Includes spending on capital equipment, structures (facorites, office buildings, houses), inventories
(goods produced but not sold yet)
- NOT stocks and bonds and financial assets.
Government purchases - ANSWERSAll goods and services purchased by the government at the state,
local, and fedral level.
- Excludes transfer payments, such as SS and unemployment benefits
Net Exports - ANSWERSExports-Imports.
- Exports represent foreign spending on the economy's goods and services
- Imports are portions of C, I, and G spent on goods from abroad.
, Real Vs Nominal GDP - ANSWERS- Nominal: Values output using current prices, not corrected for
inflation. Changes in nominal GDP reflect changes in prices and quantities produced
- Real: values prices using the prices of a base year. Is corrected for inflation.
Example of real and nominal GDP:
Two products in the Pasadena economy: mangoes and caterpillars
Mangoes Caterpillars
PQPQ
2011 10 400 2 1000
2012 11 500 2.5 1,100
2013 12 600 3 1,200
- Compute nominal GDP for each year
- Compute Real GDP for each year.
- Compute Price level (as measured by GDP deflator) each year - ANSWERS- 6,000; 8,250 ; 10,800
- 6000; 7,200; 8,400
- 100 , 115; 129
GDP Deflator - ANSWERS- Nominal GDP/Real GDP X 100
- Measure of the overall level of prices
- One way to measure the inflation rate is to compute the % change in price level (as measured by GDP
deflator) from one year to the next.
GDP and Economic Well Being - ANSWERSReal GDP per capita is the best indicator of the average
person's standard of living. BUT, its not perfect. Doesn't measrue....
- Quality of the enviroment
- Leisure time
- Non-market activity like childcare
- Equitable distribution of income
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