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Ec108 - Macro > 1 - Definitions > Flashcards

1 - Definitions Flashcards

1
Q

Aggregate output

A

Measured in GDP.

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2
Q

Way 1 of defining GDP

A

GDP is the value of final goods and services produced in the economy during a given period, count only final goods, not intermediate goods

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3
Q

Way 2 of defining GDP

A

GDP is the sum of value added in the economy during a given period

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4
Q

value added by a firm

A

the value of its production minus the value
of the intermediate goods used in production

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5
Q

way 3 of defining GDP

A

GDP is the sum of the incomes n the economy during a given period. aggregate production and aggregate income are always equal

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6
Q

Nominal GDP

A

the sum of the quantities of final goods produced times
their current price

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7
Q

Nominal GDP increases when…

A

1) the production of most goods increases. 2) the price of most goods increases

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8
Q

Real GDP

A

the sum of quantities of final goods times constant (not current) prices

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9
Q

Nominal GDP is also called

A

Dollar GDP, or GDP in current dollars

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10
Q

GDP is also called

A

GDP in terms of goods, GDP in constant
dollars, GDP adjusted for inflation, or GDP in 2009 dollars

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11
Q

Intermediate good

A

used in production of another good

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12
Q

recession

A

negative GDP growth

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13
Q

expansion

A

positive GDP growth

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14
Q

synchronisation

A

two countries GDP growth is interrelated

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15
Q

cyclical variables

A

variables that have a positive correlation

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16
Q

Reason 1 why measuring GDP is difficult

A

A tough problem in computing real GDP is how to deal with changes in the quality of existing goods. One of the most difficult cases is computers

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17
Q

Reason 2 why measuring GDP is difficult

A

The price for services from Facebook, YouTube, Wikipedia, Google is practically zero. eg. move from paid calls to Skype calls looks like less GDP because less money is spent

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18
Q

Reason 3 why measuring GDP is difficult

A

Many activities may be legal in some countries but illegal in others (e.g., prostitution, drugs)

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19
Q

Reason 4 why measuring GDP is difficult

A

only housing services are included eg. hired cleaners rather than unpaid housework

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20
Q

Solution for Reason 1

A

look at how the market values computers with different characteristics in a given year, treats goods as providing a collection of characteristics – here speed, memory and so on – each with their own price, is called hedonic pricing

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21
Q

Example of hedonic pricing

A

The quality of new laptops has increased on average by 18% a year since 1995, while their dollar price has declined by about 7% a year

22
Q

employment

A

the number of people who have a job

23
Q

unemployment

A

the number of people who do not have a job but have been looking for one in the last 4 weeks

24
Q

labour force

A

the sum of employment and unemployment

25
Q

unemployment rate =

A

unemployment / labour force

26
Q

unemployment rate

A

the ratio of the number of people who are unemployed to the number of people in the labour force

27
Q

what do most rich countries rely on to compute the unemployment rate

A

large surveys

28
Q

the US Current Population System relies on

A

interviews of 60,000 households every month

29
Q

Those who do not have a job and are not looking for one are counted as

A

not in the labour force

30
Q

discouraged workers

A

those who give up looking for a job and so are no longer counted as unemployed

31
Q

participation rate

A

s the ratio of the labour force to the total population of working age

32
Q

Reason 1 for economists to care about unemployment

A

Direct effect on the welfare of the unemployed, especially those remaining unemployed for long periods of time

33
Q

Reason 2 for economists to care about unemployment

A

a signal that the economy is not using its human resources efficiently

34
Q

Very low unemployment can be a problem because

A

the economy runs into labour shortages and employers need to pay higher wages, which may raise prices and raise inflation

35
Q

inflation

A

a sustained rise in the general level of prices

36
Q

inflation rate

A

the rate at which the price level increases

37
Q

deflation

A

a sustained decline in the price level eg Japan

38
Q

GDP deflator =

A

Pt = Nominal GDP/Real GDP

39
Q

GDP deflator

A

the ratio of nominal GDP to real GDP in a year

40
Q

rate of inflation=

A

the rate of change in GDP deflator

41
Q

nominal GDP =

A

rate of inflation + rate of growth of real GDP

42
Q

Reason 1 why the set of goods produced in the economy is not the same as the set of goods purchased by consumers

A

some goods in the GDP are sold not to consumers but to firms, to the government, or the foreigners

43
Q

Reason 2 why the set of goods produced in the economy is not the same as the set of goods purchased by consumers

A

Some of the goods brought by consumers are not produced domestically but are imported from abroad

44
Q

Consumer Price index -

A

a measure of the cost of living (and of the cost of the consumption basket of a typical consumer)

45
Q

CPI is published monthly by…

A

Bureau of Labour Statistics (BLS),
which collects price data for 211 items in 38 cities

46
Q

CPI gives the cost in dollars of …

A

a specific list of goods and services over time

47
Q

CPI and GDP deflator are …

A

largely similar, move together most of the time

48
Q

Exception of CPI and GDP deflator moving together

A

in 1979 and 1980, the increase in the CPI was significantly larger than the increase in the GDP deflator due to the price of imported goods increasing relative to the price of domestically produced goods

49
Q

Reason 1 why economists care about inflation

A

– Inflation affects income distribution when not all prices and wages rise proportionally

50
Q

Reason 2 why economists care about inflation

A

Inflation leads to distortions due to uncertainty and because of its interaction with taxation

51
Q

Inflation interaction with taxation

A

higher wages to match inflation means move up to higher tax bands and pay more taxes

52
Q

Most economists believe the “best” rate of inflation to be

A

a low and stable rate of inflation between 1 and 4%

Ec108 - Macro (2 decks)

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