Econ 402 Midterm 1 || Questions and 100% Accurate Answers.
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Course
Econ 402
Institution
Econ 402
Product Market correct answers firms supply goods and services to product market, households, government and firms demand goods and services
Factor Market correct answers Factors of production: Labor (L) and Capital (K)
Firms demand factors of production
Households supply factors of production...
Econ 402 Midterm 1 || Questions and 100% Accurate
Answers.
Product Market correct answers firms supply goods and services to product market, households,
government and firms demand goods and services
Factor Market correct answers Factors of production: Labor (L) and Capital (K)
Firms demand factors of production
Households supply factors of production
Asset Market correct answers Households have funds to save and demand assets to store their
wealth
Firms demand funds to finance investment
Financial Market intermediaries take funds from households in exchange for financial assets (i.e.
promises to pay back) and distribute these funds to firms
Firm revenue (Y) correct answers market value of all finished goods and services produced in
the current period
Household income correct answers wL- labor income
RK- capital income
Product=Income correct answers Y=wL+RK
Product=Expenditure correct answers Y=C+I+G
Disposable Income correct answers either consumed or saved
Y-T
Sp=Y-T-C
Government income correct answers T, either consumed or saved
Sg=T-G
Saving=Investment correct answers Sg+Sp=I
Saving is used to fund investment
Budget Deficit correct answers G-T
At correct answers household financial assets at date t
Two forms of wealth correct answers Kt-market value of private business assets
Bt-market value of government debt
At=Kt+Bt
, depreciation rate correct answers d, fraction of market value of capital lost due to wear and tear
in the current period
Interest payments to households correct answers rtBt
GDP correct answers the market value of all finished goods and services produced within a
country's borders during a year, sum of values added by all producers
finished good correct answers one that is not going to be sold again as part of some other good
Value added correct answers value of input- cost of inputs purchased from other producers
inventory investment correct answers goods produced in the current year but not sold in the
current year are counted as part of investment
Capital goods correct answers goods used in production of other goods that are still considered
final goods
Equipment, structures, land, IP
durable-can be used in production over multiple periods
Why do we care about measuring real GDP? correct answers track changes in the standard of
living, track changes in ability to produce goods and services
Average labor productivity correct answers Y/L, captures production efficiency
What do you do if relative prices go out of date? correct answers Chain Weighted GDP- rolling
base year, pick a new base year every 5 years and recalculate Yt and Pt since the previous base
year
What do you do if there are improvements in the quality of goods? correct answers Hedonic
price instead of actual price. Split a good into components and evaluate the contribution of every
component to the price of the good.
CPI correct answers cost of living-market basket includes goods consumers buy.
Producer Price Index correct answers PPI, cost of production-market basket includes good
producers buy.
GDP Deflator correct answers includes all goods in GDP
Why is it convenient to measure change over time with growth rate? correct answers doesn't
depend on units of measurement
Real interest rate correct answers a reward for postponed consumption. reward is adjusted for
inflation. also a penalty for consuming now rather than later.
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