2/22 test Flashcards
inflation occurs when…
a rising aggregate price level
purchasing power parity
adjust for differences in inflation/prices in two countries
principal source of savings
households
financial intermediaries
organizations that receive funds from savers and then channel those funds to investors
spending on machinery, tools, and factories represent…
capital/economic investment
expenditures approach
total spending in our economy to figure out gdp
income approach
total earnings in an economy
real GDP
gdp adjusted to inflation in a country
nominal GDP
gdp calculations that dont include inflation
GDP
total value of all newly produced final goods in an economy in 1 year
consumption
all spending by households on newly produced consumer goods and services
durable goods
an item that can be repaired/lasts more than three years
nondurable
ex: clothes and food
items that cannot be repaired and last less than 3 years
savings
part of income that is not used (stocks, bonds, savings account)
where does most of savings come from?
households
where does most of economic investment come from?
firms/businesses
gross domestic investment
spending by businesses on newly produced capital goods and services (new homes, factories, equipment/inventories)
purchasing stocks and bonds is an example of…
financial investment
how do you calculate added value
this years inventory-last years inventories
what is included in the income approach
compensation of employees, rent, interest, income tax, income, dividends
what are the shortcomings of GDP
does not account for work outside circular flow model, doesnt measure improved livingg conditions, doesnt measure quality improvements, doesnt account for underground economy
what is frictional unemployment
temporary loss of jobs
structural unemployment
due to structural changes within the economy (advancement in technology)
cyclical
caused by a lack of spending in the economy, no workers and no jobs
who is the labor force
unemployed and employed people in a community
how do you calculate unemployment rate
unemployed/labor force X 100
how do you calculate % of labor force
labor force/population over 16 X 100
okuns law
for every 1% rise in unemployment above the natural rate of unemployment there is a 2.5% decline in GDP
price index
GDP deflator, GDP from base year
how to calculate real gdp
nominal GDP/price index X 100
demand pull inflation
too many dollars chasing too few goods and services
cost push inflation
inflation caused by an increase in the price of inputs
who is harmed by inflation
people with fixed income, lenders who lent at fixed rate
who benefits from inflation
creditors
