Chapter 1 Macroeconomics is the study of the performance of national economies and of the policies governments use to try to improve that performance. Browse by school ... b. turn dollar figures into meaningful measures of purchasing power. Which of these is true of the U.S. fertility rate at present? By finding the numeric difference between those entering the country and those leaving it. a unit-free measure of an economic indicators; index numbers are based on a value of 100, which makes it easy to measure percent changes Inflation rate: The percentage change in some price index market basket: hypothetical collection of goods and services (or more precisely, the quantities of each good or service) consumers typically buy d. regulations of firms and unions. A literal market basket of goods. Some of the concepts tested in the quiz include macroeconomics, economic output, and inflation and deflation. The result is equivalent to creating a weighted average of the prices of the three items, with the weights being the percentage of the college student’s budget made up by each item. Which of these was run by the states but later taken over by the federal government? Macroeconomics - study the forces that influence the economy as a whole • Some countries have high rates of inflation while others maintain stable prices Why do all countries experience recessions and depression- recurrent period of falling incomes and rising unemployment How can government policy reduce frequency and severity of these episodes? c. the interaction of households and firms. A single person with relatives who live elsewhere. Measuring a Nation’s Income; CPI; D GDP 1. When economists talk about the, a price index, economists arbitrarily choose one year to be the. The ATSIX resolves these complications by creating a smooth curve of inflation expectations using a statistically optimal method to combine survey-based measures: the Philadelphia Fed’s Survey of Professional Forecasters, and the Blue Chip Economic Indicators and Blue Chip Financial Forecasts published by Wolters Kluwer Law & Business. Thus, the inflation rate over this time, again calculated by the percentage change, is approximately: Table 3. During which decade were government assistance programs most effective at reducing the poverty rate? The total income of everyone in the economy adjusted for the level of prices is called: A) a recession. Real GDP grows by 2.3% in the second quarter. At what point does the Census Bureau distinguish between urban and rural populations? Which of these are the two most significant causes of income inequality? B. the popularity of the incumbent president rises. They transform the other data so that the data are easier to work with. is used to monitor the performance of the overall economy but is not the single best measure of a society's economic well-being. Price indices can measure a narrow range of goods and services or a broader range of goods and services. PI is measured before taxes are taken; DPI is measured after taxes are taken. D) market-clearing rate. How has America's center of population changed during the past 200 years? Which of these describes the Census Bureau's forecast for life expectancy in the United States? Index numbers are unit-free measures of economic indicators. It has widened despite government assistance to low-income individuals. This sounds complicated, but it is really a simple math trick. To calculate the price index in this example, first compute how much money is spent on each good in Year 1. The average woman will bear slightly more than two children in her lifetime. For which of these is demand most expected to decline by 2050? Which of these would most likely positively affect a nation's GDP? To construct an overall measure of the price level, economists compute a weighted average of the prices of the items in the basket, where the weights are based on the actual quantities of goods and services people buy. The West and the South have seen greater growth than the North and the East. Say that in any given month, a college student typically purchases 20 hamburgers, one bottle of aspirin, and five movies. Doing either will give us a value for the price index in the base year of 100. Think about the items you place in your shopping cart (or basket) to buy. We’ll explain this shortly. Real GDP measures the total income of everyone in the economy (adjusted for the level of prices) i. Second, index numbers have no dollar signs or other units attached to them. The price index for groceries increased by 70% over the 25-year period. Typically, prices rise over time, but prices can also fall (a situation called deflation). The precise inflation rate as the price index moves from 107 to 110 is calculated as (110 – 107)/107 = 0.028 = 2.8%. If you’re wondering why simple subtraction of the index numbers wouldn’t work, read the following feature. 12. Each year, the cost of buying the given basket of goods at the prices prevailing at that time is shown. Core inflation is measured by both the CPI and the core personal consumption expenditures index (PCE). Which of these is always true of an "underground economy" transaction? A measure of how fast prices are rising is called the: A) growth rate of real GDP. B) inflation rate. Why would the sale of a secondhand car not be included in a calculation of GDP? This calculation of the change in the total cost of purchasing a basket of goods takes into account how much is spent on each good. Now, the total cost of the market basket in each year is not quite a price index, because we haven’t established a base year. Price indices are created to help calculate the percent change in prices over time. Macroeconomists study a. decisions of households and firms. Mathematically, that is equivalent to dividing $107 by 100, or $1.07. The base year, by definition, has an index value equal to 100. Changes in the prices of goods for which people spend a larger share of their incomes will matter more than changes in the prices of goods for which people spend a smaller share of their incomes. Which of these will most likely create a challenge for our nation within the next few decades? You can see this since the price index increased from a value of 100 in 1990 to a value of 170 in 2015. Did you have an idea for improving this content? D) the inflation rate. This includes regional, national, and global economies. The inflation rate, then, is the percentage change each year in the weighted average of prices. Total cost of the market basket in Year 2: Total cost of the market basket in Year 3: Total cost of the market basket in Year 4: These computations are summarized in Table 1. The economy experienced inflation between 2004 and 2005 and between 2005 and 2006. Prices for these items over four years are given below. C) real GDP. 2. Suppose the price index was 110 in 2004, 120 in 2005, and 125 in 2006. Which of these government programs provides qualified people with food stamps? The British government has set an inflation target of 2% using the consumer price index (CPI) It is the job of the Bank of England to set interest rates so that aggregate demand is controlled, inflationary pressures are subdued and the inflation target is reached There are price indices for restaurant meals, for groceries, for consumer goods and services, or for everything included in GDP. Which of these accurately describes population growth in the United States since shortly after World War II? What does a Lorenz curve of the U.S. economy show? https://quizlet.com/109665949/chapter-12-economics-flash-cards It gauges the number of voluntary economic transactions occurring in that nation. Unemployment iv. 11 It records the prices of 80,000 consumer items each month. But any base year that is chosen for the index numbers will result in exactly the same inflation rate. *Macroeconomists study how these variables are determined, why they change over time, and how they interact with one another b. Check these out: Food Production. What does a fertility rate of 2.119 indicate? Prices of some goods in the basket may rise while others fall. It is chosen as a starting point from which changes in prices are tracked. The next step is to identify the prices of those items, and create a weighted average of the prices. That distribution of income has become increasingly unequal over time. Which of these describes the relationship of demographers to our nation's infrastructure? 11. Which of these states a difference between personal income (PI) and disposable personal income (DPI)? Index numbers for prices are called price indices. For example, from period 2 to period 3, the overall change in the cost of purchasing the basket rises from $106.50 to $107. Learn vocabulary, terms, and more with flashcards, games, and other study tools. What sort of work is usually required of those participating in workfare programs? Gross Domestic Product The GDP equals the total value of goods and services produced in a country during a year. Figure 2 shows price indices for U.S. higher education, healthcare and groceries, for the period 1990-2015, which are computed by the Bureau of Economic Analysis in the U.S. Commerce Department. C. why do some countries have high rates of inflation. The quiz will ask you to define these terms and a handful of others. We’d love your input. Why has the center of population of the United States changed over time? From Year 1 to Year 2, the price index in Table 2 rises from 93.4 to 99.5. Although CPI is the most widely used measure of inflation… In this lesson summary review and remind yourself of the key terms and calculations used in measuring inflation. The most well-known indicator of inflation is the Consumer Price Index (CPI), which measures the percentage change in the price of a basket of goods and services consumed by households. Say that Year 3 is chosen as the base year. That is your market basket. Remember, the inflation rate is not derived by subtracting the index numbers, but rather through the percentage-change calculation. These calculations are summarized in Table 3. The general price level is a man-made construct for which no natural scientific formula exists. B) an inflation. In the official inflation statistics, it is common to use one base year for a few years, and then to update it, so that the base year of 100 is relatively close to the present. Watch the four minute clip from this video to review the distinction between price indices and inflation rates. For example, in year three the inflation rate was calculated this way: Note that we could also get to this number by computing inflation rates as the percent change over time in the cost of the market basket. 2. Macroeconomics is a branch of the economics field that studies how the aggregate economy behaves. One of the most popular is the Consumer Price Index (CPI), which measures prices for a … The price index for healthcare increased by 213% over the same period, and the price index for higher education, which includes tuition, room, board, textbooks and other fees, increased nearly 450% over the period. For example, an increase of 10% in the rental rate on housing matters more to most people than whether the price of carrots rises by 10%. Macroeconomists confuse the additional money injected into the economy with growth. However, the two numbers expressed in dollars are exactly in the same proportion of 107 to 110 as the previous example. In this example, the price of aspirin does not change over the four years, while movies increase in price and hamburgers bounce up and down. Suppose we look at a simple basket of goods consisting of hamburgers, aspirin and movie tickets, three items that a college student might buy. Economic growth is, therefore, a sustainable increase in the amoun… D) a business fluctuation. Thus, the inflation rate over this time, again calculated by the percentage change, is approximately: [latex]\displaystyle\frac{(100-99.5)}{99.5}=0.0047=0.47\text{ percent}[/latex]. Real GDP per person measures the income of the average person in the economy ii. C. incomes fall. The percentage increase in the price for these goods in one year is the inflation rate or, if the value drops as happened in Japan over much of the past decade, the deflation rate. Since the total amount of spending in that year is $107, we divide that amount by itself ($107) and multiply by 100. Imagine a weekly trip to the grocery store. 10. Calculating the Inflation Rate from the Price index, transcript for “Price Indices and Inflation- Macro 2.4” here (opens in new window), https://cnx.org/contents/vEmOH-_p@4.44:_ugh5KKw@4/Tracking-Inflation, https://www.flickr.com/photos/polycart/5783063464/in/photolist-9P2HhL-cWfFTC-7Uy3V8-9PkiXz-F5Xy87-7BJjen-5CP9ce-TckgPq-drJtEN-gHQpx4-ZujbkL-71R9vA-71QXiC-dLEHk3-JBHu5A-dHhXEK-YCzFLW-jQA1mg-qYH7PF-am2frE-9LrezN-9LqveS-9kPuCv-aHrkPc-6TDV5Y-ejcwUR-35qpgj-mTUuPg-ZxvVvo-9e5ehN-gHQvTG-ejc81K-ZxvUZJ-8VbipK-9LkTKx-71LZLM-9LkTAP-7Mjea-9dKTVc-onmHrk-5n7zjw-7knXt9-on9BJ1-c1SMn3-aV1hu2-cWfEbo-cwUthf-5n3hhZ-cWfGr5-KMZjJ, https://www.youtube.com/watch?v=JW7IQ45_up8. Which of these describes the overall trend in U.S. population since the 1970s? It studies regional, national, and global economies. Which of these is used by macroeconomists to measure inflation? Calculations for the other values of the price index, based on the example presented in Table 1 are shown in Table 2. Reliable inflation figures are critical for other reasons as well: to compare American incomes in 1970 with those in 2010, for example, one must know how … Which of these best describes how a business's creation of output affects individuals? Then, to figure out the values of the price index for the other years, we divide the dollar amounts for the other years by 1.07 as well. a) From the point of view of the average standard of living of U.S. citizens, why is the CPI the best measure of inflation/deflation? The rate of inflation is measured by the annual percentage change in consumer prices. The advantage of using price indices over the costs of the market basket is that indexing allows easier eyeballing of the inflation numbers. Equal income distribution and actual income distribution. Macroeconomics (from the Greek prefix makro-meaning "large" + economics) is a branch of economics dealing with the performance, structure, behavior, and decision-making of an economy as a whole. Although price index numbers are used to calculate a percentage inflation rate, the index numbers themselves do not have percentage signs. When economists talk about the price level, what they mean is the average level of prices. To see this in the previous example (Table 1), imagine that Year 1, when total spending was $100, was also chosen as the base year, and given an index number of 100. An inflation rate can be computed for any price index using the general equation for percentage changes between two years, whether in the context of inflation or in any other calculation: [latex]\displaystyle\frac{(\text{Level in new year}-\text{Level in previous year})}{\text{Level in previous year}}=\text{Percentage change}[/latex]. Measure of the price level that is used to calculate real GDP Shortcomings of GDP data GDP data does not include the production of nonmarket goods, the underground economy, production effects on the environment, or the value placed on leisure time. Topics include the consumer price index (CPI), calculating the rate of inflation, the distinction between inflation, deflation, and disinflation, and the shortcomings of the CPI as a measure … Essential German Verbs. Which of the following headlines would be more closely related to what macroeconomists study than what microeconomists study? The inflation rate is the ... and the actual mortgage payments made on the houses are used to estimate the value of these rental services. What best explains why a nation's GDP is an indication of its citizens' overall well-being? Economists assess the success of an economy’s overall performance by studying how it could achieve high rates of output and consumption growth. Figure 1. It generates jobs and therefore increases income. For the purpose of such an assessment, three macroeconomic variables are particularly important: gross domestic product (GDP), the unemployment rate, and the inflation rate. According to economists today, American households are thriving; but they are using an outdated index that is based on inflation. How often does the official U.S. census occur, and what does it do? Differences in wealth and differences in education. A government contract with a large private firm for road construction. Which of these is not considered when determining whether someone falls below the poverty threshold? D. the inflation rate rises. You can view the transcript for “Price Indices and Inflation- Macro 2.4” here (opens in new window). Third, the choice of a base year for the index number—that is, the year that is automatically set equal to 100—is arbitrary. Which of these is an example of an intermediate product? A decrease in demand for new automobiles. Macroeconomists define inflation/deflation in multiple ways. Index numbers just mirror the proportions found in other data. Note also that the dollar signs cancel out so that price indices have no units. C) unemployment rate. Demographers compile population information needed to maintain the infrastructure. Every 10 years; it counts the population and their place of residence. Because their value is included in that of the final product. To calculate the price level, they begin with the concept of a market basket of goods and services. Inflation iii. The CPI gives the current price of a selected basket of … By contrast, imagine that the price levels were expressed in absolute dollars of a large basket of goods, so that when you looked at the data, the numbers were $19,493.62 and $20,009.32. Explain what a price index is and how to compute one, Calculate inflation rates using price indices, If inflation is the percentage change of the price level, what is the “price level”? Why are intermediate products excluded from macroeconomic calculations of GDP? Therefore, the percentage change over this time—the inflation rate—is: [latex]\displaystyle\frac{(99.5-93.4)}{93.4}=0.065=6.5\text{ percent}[/latex]. Nursing Ethics. Which of these would economists count as a member of a household, but no part of a family? Macroeconomics deals with the performance, behavior, structure, and the decision-making process of an economy as a whole. Which of these does a Lorenz curve compare? One common way economists use inflation data is by looking at “core inflation,” which is generally defined as a chosen measure of inflation (e.g., the Consumer Price Index or CPI, the Personal Consumption Expenditures Price Index or PCEPI, or the Gross Domestic Product Deflator) that excludes the more volatile categories of food and energy prices. When the base year is fairly close to 100, a quick subtraction is not a terrible shortcut to calculating the inflation rate—but when precision matters down to tenths of a percent, subtracting will not give the right answer. From Year 2 to Year 3, the price rises from 99.5 to 100. They develop models explaining relationships among factors such as consumption, unemployment, inflation, … The PCE represents the prices of goods and services purchased by consumers in the U.S. Robert works as a lawyer. Which of these most accurately describes the "income gap" in the United States? 3. Which of these describes how net immigration is determined? Which of these is an example of a nonmarket transaction? The numerical results of a calculation based on a basket of goods can get a little messy. Again, this is because the index number in the base year always has to have a value of 100. Next compute the total cost of the market basket in Year 1: Next, do the same computations for Years 2 through 4. Macroeconomists study the aggregated indicators such as the GDP, national income, price indices, unemployment rates and how different sectors of the economy interrelate to understand the functions of the economy as a whole. If we want to use a measure of inflation that foreshadows price changes before they affect prices at the retail level, we would base our measure of inflation on. Generally, macroeconomists agree that inflation should stay low, which is one way to help mitigate the possible negative effects … Which economic sector is not determined by measuring specific sources of income? Price Indices for U.S. Higher Education, Healthcare & Groceries (1990-2015). Inflation rate refers to the rising cost of goods and services over time, and is one of the more complex fields macroeconomists study. D. what causes recessions and depressions. Three points to remember: first, the inflation rate is the same whether it is based on dollar values or price indices, so then why bother with the price indices? Granted, there are several different ways to measure inflation, leading to more than one inflation index. 12 The CPI will tell you the general rate of inflation. An inflation rate is just the percentage change in a price index. A price index is essentially the weighted average of prices of a certain type of good or service. An increase in the percentage of elderly people. To simplify the task, the price level in each period is typically reported as an index number, rather than as the dollar amount for buying the basket of goods. Figure 2. Welfare: economic and social help because of need. Each price index has a base year of 1990 and increases over time. Which of the following would not be considered part of a nation's GDP? The inflation calculations we performed above were all based off the the price indices. A computer monitor packaged as part of a new computer system. If inflation is the percentage change of the price level, what is the “price level”? Start studying 1-1 What Macroeconomists Study. Macroeconomics Midterm Review / October 25, 2016 Week 1 (Chapter 6) In Assessing the Health and Development of an Economy Macroeconomists focus on:-Real GDP-Unemployment-Inflation Real GDP (Gross Domestic Product)-Measures the value of goods/services produced within that country, during a time period-Nominal GDP must first be calculated Unemployment-Occurs when a person cannot get a … The most prominent inflation measure, the Consumer Price Index (CPI), has historically overstated inflation by about seven-tenths of a percentage point each year. 11. Thus, the inflation rate over this time, calculated by the percentage change, is approximately: [latex]\displaystyle\frac{(107-106.50)}{106.50}=0.0047=0.47\text{ percent}[/latex]. Please begin by giving us the definitions in terms of the consumer price index (CPI), the producer price index (PPI) and the GDP deflator. Under what heading do most federal government programs for the needy fall? Most people find it difficult to eyeball those kinds of numbers and say that it is a change of about 3%. Which of these is one of the two biggest reasons for the nation's widening income inequality? Inflation is primarily measured in two ways: through the Consumer Price Index (CPI) and the GDP deflator. 12. From Year 3 to Year 4, the overall cost rises from 100 to 109.8. The consumer price index, or CPI, is a measure of inflation based on the price changes of hundreds of consumer goods in various categories, such as food, clothing, health care, energy and education.
which of these is used by macroeconomists to measure inflation?