ECO 1102 Study Guide - Final Guide: Gdp Deflator, Nominal Interest Rate, Physical Capital

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ECO 1102 Full Course Notes

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Components of gdp: gdp (y)= consumption (c) + investment (i)+ government purchases (g)+ net. Exports (nx: note: net exports= exports- imports. The gdp deflator: gdp deflator= (nominal gdp/ real gdp) x 100. Inflation rate in current year= [(gdp deflator in current year- gdp deflator in previous year)/ gdp deflator in previous year] x 100. Consumer price index (cpi): cpi= (cost of basket of goods in current year/ cost of same basket in base year) x 100. Inflation rate in current year= [(cpi in current year- cpi in previous year)/ cpi in previous year] x 100. Comparing dollar figures from different times: price in todays dollars= (price in base year"s dollars) x (cpi today/ cpi base year) Real interest rate= nominal interest rate- inflation rate. Factors of productivity: (1) physical capital per worker (k) (2) quantity of labour (l) (3) human capital per worker (h) (4) natural resources per worker (n) (5) technical knowledge (a)

Related Questions

Given nominal GDP of $4.2 trillion and a GDP Deflator is 120, we can conclude that real GDP is equal to:

	A.	$3 Trillion.
	B.	$3.5 Trillion.
	C.	$3.9 Trillion.
	D.	$5.2 Trillion.

Say real GDP is $9.2 trillion. If personal consumption is $5.1 trillion, investment is 1.8 trillion, and government purchases are 2.5 trillion, then:

	A.	personal consumption is less than exports.
	B.	exports exceed imports by $0.2 trillion.
	C.	imports are equal to exports.
	D.	imports exceed exports by $0.2 trillion.

3. If nominal output is $4.2 trillion and the GDP Deflator is 5 percent higher than its base year, then real output is:

4. If the CPI in 1979 was 72.6 and it was 82.4 in 1980, then the inflation rate from 1979 to 1980 was?

5. Housing comprises roughly 40% of the market basket in the CPI. If the price of housing rises 15% in one year while the other components in the CPI rise by 10%, the CPI will rise by 12%. True or False?

The table below lists annual consumer price index and inflation rates for a country over the period 2005-2010. Assume the year 2005 is used as the base year.

Year	Consumer Price Index	Inflation Rate
2005	100
2006	115	B
2007	125	C
2008	140	D
2009	A	10%
2010	160	E

8.7%

120

25%

12%

The price index was 170 in the first year, 180 in the second year, and 195 in the third year. The inflation rate was about

5.9 percent between the first and second years, and 8.3 percent between the second and third years.

5.6 percent between the first and second years, and 7.7 percent between the second and third years.

10 percent between the first and second years, and 15 percent between the second and third years.

80 percent between the first and second years, and 95 percent between the second and third years.

0.1 points

QUESTION 17

The price index was 150 in the first year, 142.5 in the second year, and 138.2 in the third year. The economy experienced

		5.0 percent deflation between the first and second years, and 3.0 percent deflation between the second and third years.
		7.5 percent deflation between the first and second years, and 4.3 percent deflation between the second and third years.
		5.3 percent inflation between the first and second years, and 4.1 percent inflation between the second and third years.
		7.5 percent inflation between the first and second years, and 4.3 percent inflation between the second and third years

0.1 points

QUESTION 18

Which of the following statements is correct about the relationship between the nominal interest rate and the real interest rate?

The real interest rate is the nominal interest rate minus the rate of inflation.

The real interest rate is the nominal interest rate times the rate of inflation.

The real interest rate is the nominal interest rate plus the rate of inflation.

The real interest rate is the nominal interest rate divided by the rate of inflation.

0.1 points

QUESTION 19

If the nominal interest rate is 6 percent and the rate of inflation is 2 percent, then the real interest rate is

4 percent.

-4 percent.

3 percent.

8 percent.

0.1 points

QUESTION 20

If the nominal interest rate is 7 percent and the real interest rate is -2.5 percent, then the inflation rate is

9.5 percent.

4.5 percent.

-4.5 percent.

-9.5 percent.

. From 2009 to 2010, the CPI for education increased from 279.3 to 281.8. What was the inflation rate for education between 2009 and 2010?

0.9%

9.0%

2.5%

90%

If the consumer price index changes from 125 in September to 150 in October, what is the rate of inflation?

20.0%

45.5%

16.7%

9.1%

. Suppose a basket of goods and services has been selected to calculate the CPI and 2014 has been selected as the base year. In 2013, the basketâs cost was $80; in 2014, the basketâs cost was $86; and in 2015, the basketâs cost was $90. The value of the CPI in 2015 was

104.6 and the inflation rate was 4.6%.

112.5 and the inflation rate was 4.6%.

112.5 and the inflation rate was 12.5%.

104.6 and the inflation rate was 12.5%.

Suppose a basket of goods and services has been selected to calculate the CPI. In 2002, the basketâs cost was $80; in 2008, the basketâs cost was $92; and in 2010, the basketâs cost was $108. The base year must be

The base year cannot be determined from the given information.

2002

2008

one of the years between 2008 and 2010.

Suppose a basket of goods and services has been selected to calculate the CPI and 2012 has been chosen as the base year. In 2012, the basketâs cost was $80.00; in 2013, the basketâs cost was $84; and in 2014, the basketâs cost was $87.60. The value of the CPI was

All of the above are correct.

109.5 in 2014.

105 in 2013.

100 in 2012.

Which of the following is correct?

The CPI is better than the GDP deflator at reflecting the goods and services bought by consumers.

The GDP deflator is better than the CPI at reflecting the goods and services bought by consumers.

The GDP deflator and the CPI are equally good at reflecting the goods and services bought by consumers.

The GDP deflator is more commonly used as a gauge of inflation than the CPI is.

The inflation rate is defined as the

percentage change in the price level from the previous period.

price level in an economy.

change in the price level from one period to the next.

price level minus the price level from the previous period.

Economists use the term inflation to describe a situation in which

the economy's overall price level is rising.

some prices are rising faster than others.

the economy's overall price level is high, but not necessarily rising.

the economy's overall output of goods and services is rising faster than the economy's overall price level.

Real versus nominal GDP

Consider a simple economy that produces two goods: apples and oranges. The following table shows the prices and quantities for the goods over a three-year period.

Year	Apples		Oranges
	Price	Quantity	Price	Quantity
	(Dollars per apple)	(Number of apples)	(Dollars per orange)	(Number of oranges)
2010	1	120	1	195
2011	2	130	4	195
2012	4	130	4	145

A. Use the information from the previous table to fill in the following table.

Year	Nominal GDP	Real GDP	GDP Deflator
Year	(Dollars)	(Base year 2010, Dollars)	GDP Deflator
2010
2011
2012

B. From 2011 to 2012, change in nominal GDP is __________, and real GDP is ________.

C. The inflation rate in 2012 was ____________.

D. Why is real GDP a more accurate measure of an economy's production than nominal GDP?

a. Real GDP does not include the value of intermediate goods and services, but nominal GDP does.

b. Real GDP includes the value of exports, but nominal GDP does not.

c. Real GDP is not influenced by price changes, but nominal GDP is.

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ECO 1102 Study Guide - Final Guide: Gdp Deflator, Nominal Interest Rate, Physical Capital

ECO 1102 Full Course Notes

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