Econ 104 Mid-term Exam Review Questions How does higher investment benefit the whole economy? What if the money invested is outweighed by the devaluation of existing buildings and machines? What is nominal GDP? What is real GDP? Which may be more suitable for comparing economic growth over time? How to calculate real GDP from nominal GDP using a GDP deflator? What is an inflation? What is a deflation? How does price level change in an inflation? How does price level change in a deflation? What does it mean by saying price level in a nation is high? Why is a moderate level of inflation good to the economy? And why is high inflation bad? What are the U.S. government’s official measure of the country’s unemployment situation? How many official unemployment measures are there? Among the different unemployment measures, which is the most often used one, i.e., which one appears on the Bureau of Labor Statistics website homepage (www.bls.gov)? Is this an accurate measure of unemployment? Does it exaggerate or underestimate the unemployment situation? Why? When the economy runs at its full capacity, will there be unemployed people? Why? The economy is subject to cyclical fluctuations. The current recession is an example of how a growing economy can move into a downturn. What is a business cycle? What are the characteristics of each phase of a complete cycle? A moderate size of debt can help the economy grow. But what if the debt is too large? Though economic activities financed by debt can help the economy grow, the borrowers finally need to pay back the debt, which is the cost of debt. What is the true burden of the debt? Macroeconomics uses equations to model the economic growth. Typically, the model includes income (Y), spending, consumption (C), investment (I), government spending (G), and saving (S), etc. Be familiar with this model, the meaning of these variables and the relationship among them. (E.g., Chapter 11 of textbook, and professor Epstein’s videos in weeks 3-6)