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Study Guide Exam 2 Understand GDP and its accounting The reason that only final sales are counted in GDP is In measuring Gross Domestic Product, goods produced by foreign firms in the United States are How does GDP deal with a Ford produced in Mexico? How does GDP deal with a Toyota produced in Kentucky? The expenditures approach to GDP equals Understand price index and measures of inflation Inflation is measured using _________ in a price index. If a market basket was defined in 2014 and it cost $10,000 to purchase the items in that basket in 2014, while it cost $11,000 to purchase those identical goods in 2015, then the price index for 2015 is Understand the AD AS macroeconomic model: You will need a full understanding of the basic macroeconomic model including how changes affect real GDP and the price level. How are the changes in AD/AS graphically diagramed? This is an important part to this course module and will be weighted accordingly. The interest rate effect, the real balance effect and the foreign purchases effect suggests that the aggregate demand curve is The Keynesian, Classical and Intermediate ranges apply to the The aggregate supply-aggregate demand diagram models The aggregate supply-aggregate demand diagram relates various levels of The rationale for interest rates determining AD is with lower interest rates The aggregate demand curve is downward sloping because of the Which of the following is not a reason for the aggregate demand curve to be downward sloping? When domestic prices rise—effect on (X) An increase in taxes will cause A decrease in taxes will cause 1 An increase in government spending will cause An increase in interest rates will cause An increase in confidence will cause A decrease in confidence will cause An increase in productivity will cause An increase in regulation will cause A decrease in regulation will cause A strengthening of the dollar will immediately shift What is fiscal policy? Understand examples of discretionary and nondiscretionary fiscal policy. What are the major economic auto-stabilizers? Fiscal Policy is controlled by The purpose of fiscal policy is to Fiscal policy is purposeful movements in ____________ designed to direct an economy. Discretionary Fiscal Policy differs from Nondiscretionary Fiscal Policy in that Replacement of a progressive income tax system with a single income tax rate would be an example of Examples of discretionary and nondiscretionary fiscal policy If you were to use an Aggregate Supply Aggregate Demand diagram to model nondiscretionary and discretionary fiscal policy in reaction to a positive aggregate demand shock, you would see the aggregate demand curve move Which of the following would qualify as an aggregate supply shock? Understand and describe the issues and implementation process for new government spending to occur. The mistiming problem with discretionary fiscal policy results from Which of the following would be described as the administrative lag? Which of the following would be described as the recognition lag? Which of the following would be described as the operational lag? 2