5-2. Macroeconomics Flashcards
What does Nominal Gross Domestic Product (GDP) measure?
The total output of final goods and services produced for exchange in the domestic market during a period.
What does GDP NOT include?
- 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.
What does nominal mean?
Not adjusted for changing prices.
What are 2 GDP measurement approaches?
- Expenditures approach: Measure GDP using final sales/purchases; the sum of spending by;
individuals, businesses, governments, foreign buyers (exports). - 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.
What does Real GDP measure? How do you get it?
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.
What does Real GDP per capita measure? How is it computed?
Real GDP per individual.
Real GDP/Population.
What does Net GDP measure? How is it computed?
GDP less capital consumption during the period.
GDP - depreciation.
What does Potential GDP measure?
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).
What does Potential GDP assume? How is it commonly estimated?
Full use of available technology and current resources.
By adjusting actual GDP.
What is GDP gap?
Difference between Real GDP and Potential GDP.
What are the interpretation of GDP gap?
- Real GDP < Potential GDP = Negative GDP gap - inefficiency in the economy.
- Real GDP > Potential GDP = Positive GDP gap - creates upward pressure on prices.
What is GNP?
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.
What is Net GNP? How is it computed?
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.
What does National Income (NI) measure?
The total pmts for economic resources included in the production of all goods and services;
wages, interest, rents, profits.
What does Personal Income (PI) measure? How is it computed?
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
What does Personal Disposable Income (PDI) measure? How is it computed?
The amount of income individuals have to spend.
PDI = PI - income taxes.
Who determines employment/unemployment data?
Bureau of Labor Statistics (BLS)
What are 2 survey resources BLS uses?
- Current Employment Survey
2. Current Population Survey
What is current employment survey?
Monthly survey of 160,000 businesses and governments.
Measures employment.
Include industry and geographical area data.
What is current population survey?
Monthly survey of 60,000 households.
Measures employment and unemployment.
Includes demographic details
What is the starting point of employment/unemployment model?
Population.
Employment/unemployment model: what are 2 elements in population?
- Labor force
2. Not labor force
Employment/unemployment model: what is included in Not labor force?
<16 yrs old Retired Not seeking work Institutionalized Active Military
Employment/unemployment model: what is included in labor force?
Employed and unemployed.
Employment/unemployment model: what are 4 categories of unemployment?
Frictional.
Structural.
Seasonal.
Cyclical.
What is frictional unemployment?
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
What is structural unemployment?
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
What is seasonal unemployment?
Those in labor force not employed because;
their jobs regularly and predictably vary by the season of the year.
What is Cyclical unemployment?
Those not employed because of a downturn in the business cycle (an economic downturn (e.g. recession) reduced the current demand for employees (labor).
What is unemployment rate?
Percentage of labor force (NOT population) not employed.
What is natural unemployment?
Those unemployed due to frictional, structural, and seasonal reasons.
When does full employment occur?
When there is no cyclical unemployment (you can have full employment even with frictional, structural, and seasonal unemployment).
What is business cycle?
Cumulative fluctuations up and down in aggregate real gross domestic product.
What are 4 characteristics of business cycle?
- 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
Business cycle: what is Y-axis? X-axis?
Y: Real GDP
X: Time
Business cycle: What does a graph look like and what are 4 major elements?
Zig zag (exaggerated) upward to the right. Expansionary: up part Peak: The top of expansionary line Recessionary: down part Trough: the bottom point
What is the official (qualitative) definition of recession?
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.
What is the unofficially quantitative definition of recession?
- 2 or more quarters of negative change in real GDP
* Downturn in real GDP of 10% or less
What is the official definition of depression?
No official quantitative definition.
Not officially recognized by National Bureau of Economic Research as a separate circumstance or time period.
What is the unofficial definition of depression?
Decline in real GDP lasting 2 or more years.
Decline in real GDP exceeding 10%.
What causes business cycle?
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
What is business cycle indicators?
Changes in specific measures of economic activity that are associated with changes in overall business cycle.
What are 2 types of business cycle indicators? What do they help to confirm?
Leading economic indicators.
Lagging economic indicators.
Timing and magnitude of business cycle.
What is leading economic indicators? Examples?
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
What is lagging indicators? Examples?
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
