Book: Chapter 2 Flashcards
What does economists mean by aggregate
Total
What is gdp
It is total output which is the same as total value added/value of final goods produced/total income during a period
What is nominal gdp
Volume produced * current price
What is an intermediate good
A good that is produced that is used for production
What is real gdp
Volume produced * constant weighted average price of all products
Why do we use 2012 when using real gdp chained to 2012 dollars
When chained to 2012 the nominal gdp is the same as real gdp at 2012
What are other words for nominal gdp
Dollar gdp or gdp in current dollars
What are other words for real gdp
Gdpin terms of goods, gdp in constant dollars, gdp adjusted for inflation or gdp in (base year) dollars and lastly gdp in chained (base year) dollars
What are recessions
Years of negative gdp growth
How is gdp growth calculated
(Y(i) - Y(i-1)) / Y(i-1)
What is hedonic pricing
A way to account for changes in products over time, economists assemble a collection of characteristics and compare how much extra people are willing yo pay for them at a certain time
What is the unemployment rate equation
U(people looking fore work) / L(labor force)
How does one know who looks for employment
In the US they ask in the current population survey
What are discouraged workers
People who give up on looking for a job
What is the participation rate
Labor force / total population if working age
Why do economists care about unemployment
Because it is a burden and represents an unexploited reaource
What is the definition of inflation
A sustained rise in the general level of pricing
What is the gdp deflator
A way to measure inflation by comparing the rise of nominal gfp and real gdp. If nominal is faster the economy inflates
How is the inflation rate calculated with the gdp deflator
P(rice)= Y$(nominal gdp) / real gdp
Pi(Inflation rate) = (P(x) - P(x-1))/P(x-1)
What is the mathematical relation between nominal gdp real gdp and the gdp inflator
$Y = P*Y for year x
Why are the goods produced not the same as the goods consumed by consumers in an economy
Some products are used by firms and or foreigners while consumers also consume foreign goods
What is the cost if living
The average price if consumption
How often are the CPI and gdp constructed
GDP quarterly and CPI month to month, the products featured in the CPI every two years
What is the CPI
The consumer price index gives the cost of a specific list of goods at a point in time
What does it mean if the CPI is 250
That prices are 2,5 times as high as the base year for consumers
How does increasing the price of imported goods compared to the value of goods produced affect the relationship between CPI and GDP inflation
CIP inflates faster then GDP
Why do economists care about inflation
Because systems based on price levels like retirement and taxes become distorted and because prices rise not in cynk, inflation is not pure, so it affects the standard if living
Why is deflation worse then inflation
Because it also comes with the same problems in addition to counteracting monetary policy
What is Okun’s law
Increased gdp growth will decrease unemployment
What is bracket kreep
When taxbrackets don’t keep up with inflation
What is the ideal rate if inflation
Between 1 and 4 percent
Why must there normally be growth to keep unemployment constant
Because productivity growth and a growing population creates excess labor force
What is the Philips curve
That when unemployment is too low it will create more inflation as the economy “overheats”
What is the core inflation rate
Inflation excluding volatile prices
What is the ideal unemployment rate for 2% inflation according to the Philips curve
5% in the us although the relationship is not as tight as okuns law
What is important for output growth in the short run
Consumer demand and confidence
What determines the output growth in the medium run
Supply factors such as capital stock, technology level and labor force size
What determines the output growth over the long run
Government, education and savings rate
