B5: Economic Concepts Flashcards
Method of Measuring GDP (Expenditure Approach)
GOVERNMENT purchases
Gross private domestic INVESTMENT
Personal CONSUMPTION expenditures
Net EXPORTS
Method of Measuring GDP (Income Approach)
INCOME of proprietors PROFITS of corporations Net INTEREST income RENTAL income ADJUSTMENTS for net foreign income TAXES EMPLOYEE wages DEPRECIATION (capital consumption allowance
Frictional Unemployment
Normal unemployment resulting from workers routinely changing jobs or from workers being temporarily laid off
Structural Unemployment
Jobs available in the market do not correspond to the skills of the workforce
Seasonal Unemployment
Seasonal changes in the demand and supply of labor
Cyclical Unemployment
Caused by declines in real GDP or recession or in any period when the economy fails to operate at its potential
Natural Rate of Unemployment
the sum of frictional, structural, and seasonal unemployment
Full Employment
NO cyclical unemployment. There is still frictional, structural and seasonal unemployment
Inflation and the value of money
Inverse relationship
Holding monetary assets = bad because of fixed amount of money
Holding monetary liabilities = good because fixed amount of debt
M1 money supply
coins, currency, checkable deposits, and traveler’s checks
M2 money supply
M1 + CD’s less than $100,000, money market deposit accounts, mutual funds, and savings accounts
M3 money supply
M1 + M2 + CD’s greater than $100,000
Expansionary Monetary Policy
Money Supply, Aggregate Demand, GDP, and Prices are all UP
Interest Rates, Unemployment are DOWN
Contractionary Monetary Policy
Money Supply, Aggregate Demand, GDP, and Prices are all DOWN
Interest Rates and Unemployment are UP
Increasing Money Supply
LOWER Interest Rates, Increase AD, and PURCHASE securities
