Vocabulary Formulas Fundamentals and GDP Unemployment Inflation
What is Opportunity Cost?
the value of the best forgone alternative. The value of the next best alternative to the choice one made.
What is the natural rate of unemployment?
(# of Fictionally Unemployed + # of Structurally Unemployed / Size of the Labor Force) x 100
No, GDP does not count second hand items since it was already accounted for in the year of its original production. Avoid double counting.
Does a thrifted outfit you bought from goodwill count towards GDP? Why or Why not.
What category of CPI would a new hat fall under?
It decreased by $1
If a price of basket of goods changed:
From $10---> $11
What happened to your purchasing power?
What is GDP Price Index?
a price index based on all the goods and services that are counted as part of GDP.
What is the Percent change in Real Income?
%Change in Nominal Income - %Change in Prices
YES, it is a service, so it is counted in GDP.
Does a haircut given in Atlanta, GA count towards the GDP? If so, what category does it fall under?
Peak, Recession, Trough, Expansion
Name the four points on the business cycle and emphasize their definition.
CPI is always equal to ____ in the base year.
What is the unemployment rate?
tells the percentage of workers in the labor force who are unemployed
What is the Labor Force Participation Rate?
(Labor Force / Population over the Age of 16) x 100
A. Underestimate the amount of production in the economy
GDP excludes most non-market transactions. Therefore, GDP tends to
A. underestimate the amount of production in the economy
B.underestimate the rate of inflation in the economy
C.overestimate the rate of inflation in the economy
D.overestimate the amount of production of the economy
11,500,000 / 350,000,000 x 100 = 3.2857%
Solve for the unemployment rate if:
labor force = 350 mil
UE= 11.5 mil
100-96.50 / 96.50 x 100 = 3.627%
119-100 / 100 x 100 = 9%
Year 1
CPI = 96.50
Year 2
CPI = 100.00
Year 3
CPI = 119.00

Calculate the inflation rate for year 2 and 3.
What is nominal income?
is actual number of dollars seen in exchange for goods and services
What is GDP (Income Approach)?
National Income + Indirect Business Taxes + Depreciation + Net Foreign Factor Income
C. Inventory Investment
When a boat is produced in 2020 but not sold until 2021, what type of investment is it included under?
A.Business-Fixed Investment
B.Residential Investment
C.Inventory Investment
D.None of the above (it is not included in investment)
Solve for the Natural Rate of Unemployment if:
Labor force= 327 mil
Frictional UE= 7.5 mil
Structural UE= 3.2 mil
C. 11% while the price index fell by 3%
A person’s real income will increase by 8% if her nominal income increases by

A. 5% while the price index rises by 3%
B.8% while the price index remains unchanged
C.11% while the price index fell by 3%
D. 6% while the price index fell by 10%
What is inflation rate?
the percentage increase in the overall prices of goods and services in the economy from one time period to another.
What is Net Investment?
I- Depreciation
C. 2015
Year Real GDP Population
2013 $65,000 700
2014 30,000 200
2015 95,000 600
2016 110,000 1000

What year is real GDP per capita the highest?
A. 2013
B. 2014
C. 2015
D. 2016
B. There is no cyclical unemployment present in the economy
Suppose Canada has a population of 30 million people and a labor force participation rate of ⅔. Furthermore, suppose the natural rate of unemployment in Canada is 7%. If the current number of unemployed people is 1.4 million people, what can we conclude about Canada’s economy?
A. The unemployment rate is above the natural rate of unemployment
B. There is no cyclical unemployment present in the economy
C. The unemployment rate is below the natural rate of unemployment
D. There is cyclical unemployment present in the economy
About 3.1%
If the CPI was 194 in one year and 200 in the next year, then the rate of inflation is approximately?

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