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BEC I and II > 5-2. Macroeconomics > Flashcards

5-2. Macroeconomics Flashcards

1
Q

What does Nominal Gross Domestic Product (GDP) measure?

A

The total output of final goods and services produced for exchange in the domestic market during a period.

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2
Q

What does GDP NOT include?

A
  • Goods/services which require additional processing.
  • Illegal activities.
  • Activities for which there is no market exchange (e.g. do-it-yourself activities, volunteer activities).
  • Goods produced in foreign countries by US owned entities.
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3
Q

What does nominal mean?

A

Not adjusted for changing prices.

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4
Q

What are 2 GDP measurement approaches?

A
  1. Expenditures approach: Measure GDP using final sales/purchases; the sum of spending by;
    individuals, businesses, governments, foreign buyers (exports).
  2. Income approach: Measures GDP as the value of incomes and resources’ costs; the sum of;
    compensation, rental income, proprietor’s and corporate income, net interest, taxes on production and inputs, depreciation, and mis other items.
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5
Q

What does Real GDP measure? How do you get it?

A

Total output of final goods and services produced for exchange in the domestic market during a period at constant prices.
*Nominal GDP adjusted for changing prices.

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6
Q

What does Real GDP per capita measure? How is it computed?

A

Real GDP per individual.

Real GDP/Population.

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7
Q

What does Net GDP measure? How is it computed?

A

GDP less capital consumption during the period.

GDP - depreciation.

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8
Q

What does Potential GDP measure?

A

Maximum output that can occur in domestic economy at a point in time without creating upward pressure on general level of prices (without causing inflation).

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9
Q

What does Potential GDP assume? How is it commonly estimated?

A

Full use of available technology and current resources.

By adjusting actual GDP.

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10
Q

What is GDP gap?

A

Difference between Real GDP and Potential GDP.

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11
Q

What are the interpretation of GDP gap?

A
  • Real GDP < Potential GDP = Negative GDP gap - inefficiency in the economy.
  • Real GDP > Potential GDP = Positive GDP gap - creates upward pressure on prices.
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12
Q

What is GNP?

A

Gross National Product - measures the total output of all goods and services produced worldwide using US resources.
Includes goods/services produced in foreign countries by US owned entities.

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13
Q

What is Net GNP? How is it computed?

A

Measures the total output of all goods/services produced world-wide using US resources, but does not include a value for depreciation.
NNP = GNP - Depreciation factor.

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14
Q

What does National Income (NI) measure?

A

The total pmts for economic resources included in the production of all goods and services;
wages, interest, rents, profits.

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15
Q

What does Personal Income (PI) measure? How is it computed?

A

Total pmts for economic resources received by individual.
PI = NI - corporate profits - social security deductions + dividends and interest received by individuals + government transfer pmts to individuals

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16
Q

What does Personal Disposable Income (PDI) measure? How is it computed?

A

The amount of income individuals have to spend.

PDI = PI - income taxes.

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17
Q

Who determines employment/unemployment data?

A

Bureau of Labor Statistics (BLS)

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18
Q

What are 2 survey resources BLS uses?

A
  1. Current Employment Survey

2. Current Population Survey

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19
Q

What is current employment survey?

A

Monthly survey of 160,000 businesses and governments.
Measures employment.
Include industry and geographical area data.

20
Q

What is current population survey?

A

Monthly survey of 60,000 households.
Measures employment and unemployment.
Includes demographic details

21
Q

What is the starting point of employment/unemployment model?

A

Population.

22
Q

Employment/unemployment model: what are 2 elements in population?

A
  1. Labor force

2. Not labor force

23
Q

Employment/unemployment model: what is included in Not labor force?

A 
<16 yrs old
Retired
Not seeking work
Institutionalized
Active Military
24
Q

Employment/unemployment model: what is included in labor force?

A

Employed and unemployed.

25
Q

Employment/unemployment model: what are 4 categories of unemployment?

A

Frictional.
Structural.
Seasonal.
Cyclical.

26
Q

What is frictional unemployment?

A

Those in labor force not employed because they;

  • Are in transition between job
  • Don’t have information needed to get matched up with an employer
27
Q

What is structural unemployment?

A

Those in labor force not employed because;

  • The need for their prior types of jobs have been greatly reduced or eliminated
  • They lack the skills for currently available jobs
28
Q

What is seasonal unemployment?

A

Those in labor force not employed because;

their jobs regularly and predictably vary by the season of the year.

29
Q

What is Cyclical unemployment?

A

Those not employed because of a downturn in the business cycle (an economic downturn (e.g. recession) reduced the current demand for employees (labor).

30
Q

What is unemployment rate?

A

Percentage of labor force (NOT population) not employed.

31
Q

What is natural unemployment?

A

Those unemployed due to frictional, structural, and seasonal reasons.

32
Q

When does full employment occur?

A

When there is no cyclical unemployment (you can have full employment even with frictional, structural, and seasonal unemployment).

33
Q

What is business cycle?

A

Cumulative fluctuations up and down in aggregate real gross domestic product.

34
Q

What are 4 characteristics of business cycle?

A
  • Measured in real GDP
  • Recur over time
  • No consistent pattern of length (duration) or magnitude
  • Impact different industries at different times and with different effects
35
Q

Business cycle: what is Y-axis? X-axis?

A

Y: Real GDP
X: Time

36
Q

Business cycle: What does a graph look like and what are 4 major elements?

A 
Zig zag (exaggerated) upward to the right.
Expansionary: up part
Peak: The top of expansionary line
Recessionary: down part
Trough: the bottom point
37
Q

What is the official (qualitative) definition of recession?

A

A significant decline in economic activity spread across the country, lasting more than a few months, normally visible in real GDP growth, real personal income, employment (non-farm payrolls), industrial production and wholesale-retail sales.

38
Q

What is the unofficially quantitative definition of recession?

A
  • 2 or more quarters of negative change in real GDP

* Downturn in real GDP of 10% or less

39
Q

What is the official definition of depression?

A

No official quantitative definition.

Not officially recognized by National Bureau of Economic Research as a separate circumstance or time period.

40
Q

What is the unofficial definition of depression?

A

Decline in real GDP lasting 2 or more years.

Decline in real GDP exceeding 10%.

41
Q

What causes business cycle?

A

Inter-related factors;

  • Change in interest rate (seems to be a primary cause: affects investment incurable goods by individuals and firms)
  • Change in taxes
  • Change in outlook and confidence
42
Q

What is business cycle indicators?

A

Changes in specific measures of economic activity that are associated with changes in overall business cycle.

43
Q

What are 2 types of business cycle indicators? What do they help to confirm?

A

Leading economic indicators.
Lagging economic indicators.
Timing and magnitude of business cycle.

44
Q

What is leading economic indicators? Examples?

A

Changes in measures that occur before change in business cycle.

  • Consumer expectations
  • Initial unemployment claims
  • Weekly manufacturing hours
  • Stock prices
  • Building permits issued
  • New orders for consumer goods
  • Level o real money supply
45
Q

What is lagging indicators? Examples?

A

Changes in measures that occur after changes in business cycle.

  • Change in labor cost per unit of output
  • Relationship between inventory and sales
  • Length of unemployment
  • Amount of commercial loans outstanding
  • Relationship between consumer installment credit and personal income

BEC I and II (12 decks)

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