Basic Economic Measurements Flashcards
Value Added (GDP)
Adding up all the profits that is made in the process of making a good.
This avoids double counting
Expenditures vs Income (GDP)
Basically no matter what you look at, expenditures or income, you will get same result.
Expenditures: final cost of an item
Income: all the profit earned on an item
Will essentially be equivalent
GDP vs NDP
GDP:
I + C + G + X
Only looks at investment (this includes in segment to replace depreciation)
NDP:
Same as GDP except it only looks at invest,met added on after depreciation is covered for
For NDP to increase, stock of capital goods must increase
Types of Inflation
Demand-pull:
Excess of spending beyond economies capacity, demand drives up prices
Cost-Push Inflation:
Rising costs-per-unit-of-production, usually do to supply shock
Real vs Nominal Wage
Real wage - what wage can actually buy
Nominal - dollar increase
Real vs Nominal Interest Rates
Basically percentage lender gets back on loan
Ex: loans $100 at 8%, inflation is 5%
Nominal Interest: 8%
Real Interest: 3% (8%-5%)
Anticipated Inflation
Has little to no effect
People can adjust nominal wages
Lenders can charge inflation premium
Rule of 70
How long it takes prices to double
70/(interest rate)
Unemployment types
Frictional - workers looking for jobs or moving to new ones (inevitable)
Structural - worker no longer has skills to compete in labor force and is fired and not hired
Cyclical - this is due to decrease in demand for goods
Who’s in labor force
- 16+ years of age
- Non-military
- non-institutionalized
- working
- “actively seeking” work
Discouraged Workers affect on unemployment rate
People who have given up looking for jobs are not counted in labor force. This underscores the severity of unemployment.
Who controls fiscal policy
Congress
Tools of Fiscal policy
Taxes and government spending
Debt and Deficits (fiscal)
Help?
Hurt?
Inflationary?
Help:
Expansionary and counters recession
Hurts:
crowding out
Inflationary:
If government prints money to cover deficit then, yes, can be inflationary.
Supply-side Economics
Aggregate supply affect inflation and unemployment
Taxes hurt productivity and should be reduced to increase aggregate supply and increase incentive to work
Believe in Laffer Curve
Terms of trade
Amount if one thing that a country must trade to get something else
Balances of Trade
Favorable (exports > imports)
Good: American goods are cheaper so Ameicans buy those
Bad: foreign goods are more expensive due to depreciation of $
Unfavorable (imports > exports)
Good: dollar appreciates and foreign goods are now easier to buy
Bad: less foreign business
How so monetarist a view economy’s stability
Inherently stable, government intervention just hurts economy
Equation of exchange
MV = PQ
M - money supply
V - velocity of money
P- prices
Q- output
Problems with fiscal policy
Recognition Lag -
Lag between realizing there is a problem and when it is realized
Administrative Lag -
Due to democratic government there is a lag between recognition of problem and when it’s addressed
Operational Lag -
Lag between time action is taken and when it’s effect starts to come into play
Monetary policy problems
Recognition and operational lag too
Money Market Graph
What shifts demand
Real income - more goes to right
Price levels - higher goes to right
Money supply - fed
Current account vs. Financial account
Current:
- More consumer
- Income from US investment abroad
- Current import and export payments of goods and services
- net transfers
Financial:
- generally capital
- inflows of foreign currency for purchase of real and financial assets at home
- outflows of currency for purchase of real and financial capital in foreign nations
Financial and Current accounts must balance to 0
