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Principle of economics > CH 7+8+9 > Flashcards

CH 7+8+9 Flashcards

1
Q

GDP (definition)

A

total value of all final goods+services produced in an economy, during a given period, usually a year

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2
Q

real GDP (definition)

A

total value of all final G+S produced in economy during given year, calculated using prices of a specific base year

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3
Q

national accounts

A

keep track of flows of money between different sectors of economy:
- spending of consumers
- sales of producers
- business investment spending
- government purchases
and more
–> reliable indicator of country’s state of economic development: the more reliable the accounts, the more economically advanced the country

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4
Q

flows of money into markets for goods+services comes from 4 distinctive markets:

A
  1. government–> purchases of goods and services (education, defence etc)
  2. households–> consumer spending
  3. firms–> imvestment spending
  4. rest of the world–> exports(-imports)
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5
Q

consumer spending (definition)

A

spending on goods+services through markets of goods and services from firms/imports rest world

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6
Q

investment spending

A

firm spending on productive physical capital–> like machinery, constructions of buildings AND inventory–> firm buys this from other firms

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7
Q

GDP formula aggregate

A

C+I+G + (X –imports)

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8
Q

final goods+services

A

goods+services sold to the final/end user–> example: consumers buying a car

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9
Q

intermediate goods+services

A

bought from one firm by another firm–> inputs for production of final goods+services

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10
Q

3 ways to calculate GDP

A
  1. sum of value added
  2. aggregate spending
  3. total payment to factors (from firms to households)
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11
Q

value added (formula)

A

value of final sale– purchase of intermediate goods+services

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12
Q

What does count in GDP

A
  • investment spending
  • capital spending
  • domestically produced final goods+services
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13
Q

What doesn’t count in GDP

A
  • spending on intermediate goods+services
  • used goods
  • financial assets–> bonds, stocks
  • import spending
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14
Q

net exports (formula)

A

value of exports – value of imports

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15
Q

aggregate output

A

total quantity of final G+S economy produces

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16
Q

nominal GDP

A

value of final G+S produced in economy during given year during given year, calculated using prices current year in which output is produced

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17
Q

chain dollars

A

method of calculating changes in real GDP using the average between growth rate calculated using an early base year and the growth rate calculated using a late base year

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18
Q

GDP per capita Formula

A

GDP : size of population

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19
Q

aggregate price level (definition)

A

level of mesure of the overall price levels in the economy

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20
Q

consumption bundle

A

typical basket of G+S purchase dbefore price changes

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21
Q

market basket

A

hypothetical consumption bundle, used to measure changes in overall price level

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22
Q

price index (definition)

A

measures the cost of purchasing a given selected market basket in a given year, where that cost is normalised so its equal to 100 in selected base year

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23
Q

price Index Formula

A

cost marketbasket in a given year : cost market basket in base year X100

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24
Q

inflation rate (definition)

A

annual percent change in an official price index

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25
Q

inflation rate (formula)

A

price index year 2– price index year 1 X100

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26
Q

consumer price index (definition)

A

measures of cost of market basket of a typical family
–> intends to show how cost of all purchases by typical urban family has changed overtime

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27
Q

producer price index (definition)

A

measures changes in prices of goods/services purchased by producers
–> often early warning sign of changes in inflation rate (tends to fluctuate most!!)

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28
Q

GDP deflator (definition)

A

gives inndication aggregate price level went up or down

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29
Q

GDP deflator Formula

A

(nominal GDP ÷ Real GDP) X100

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30
Q

monetary policy

A

decisions about the quantity of money and key interest rates

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31
Q

employment

A

number of people currently employed in the economy, either full time or part time

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32
Q

unemployed

A

number of people actively looking for work (last 4 weeks) but aren’t employed

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33
Q

labour force formula

A

employment+unemployment

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34
Q

labour force participation rate (definition)

A

percentage of population 16+ that is in the workforce

35
Q

labour force participation rate formula

A

labour force ÷ population 16 and older X 100

36
Q

unemployment rate (definition)

A

percentage of total number of people in labour force who are unemployed

37
Q

unemployment rate Formula

A

number of unemployed workers ÷ labour force X100

38
Q

unemployment rate can:

A
  • overstate true level of unemployment–> unemployment rate never 0 because also count people with high chance of getting job but still not decided if want to accept
  • understate true level of unemployment–> if haven’t been looking in last 4 weeks not counted
    –> also if underemployed also not counted
39
Q

discouraged workers

A

non working people capable of working but have given up looking forjob given state of job market

40
Q

marginally attached workers

A

would like to be employed and have looked for job in recent past but currently not looking

41
Q

underemployed

A

number of people who work part time becase they can’t find full-time jobs

42
Q

jobless recovery (growth recession)

A

period in which real GDP growth rate is positive but unemployment is still rising

43
Q

frictional unemployment

A

unemployment due to the time workers spend in job search–> don’t want job that doesn’t meet their standards/education/preferred work field

44
Q

structural unemployment

A

more people seeking job in particular sector than jobs available at current wage rate, even when economy at peak of business cycle

45
Q

minimum wage

A

government mandated floor on wage rate

46
Q

unions

A

organisation of workers that bargain collectively with employers to raise wages and improve working conditions

47
Q

efficiency wages

A

that employers set above equilibriym wage rates as an incentive for better employee performance

48
Q

natural rate of unemployment (definition)

A

unemployment rate that arises from the effects of frictional+structural unemployment

49
Q

cyclical unemployment

A

the deviation of teh actual rate of unemployment from the natural rate due to downturns in the business cycle

50
Q

natural unemployment formula

A

frictional unemployment+structural unemployment

51
Q

actual unemployment formula

A

natural unemployment+cyclical unemployment

52
Q

real wage formula

A

wage rate ÷ price level

53
Q

real income formula

A

income ÷ price level

54
Q

shoe leather costs

A

increased costs of transaction caused by inflation–> name from wear+tear of running around people trying to avoid holding onto money

55
Q

hyperinflation

A

occurs when prices rise by 50% or more per month–> making annual inflation rate around 13k%

56
Q

menu costs

A

the real cost of changing a listed price

57
Q

unit of account costs (of inflation)

A

costs arising from the way inflation makes money a less reliable unit of measurement

58
Q

interest rate

A

the price, calculated as a percentage of the amount borrowed, that lenders charge borrowers for the use of their savings for one year

59
Q

nominal interest rate (definition)

A

interest rate expressed in dollar (a currency) terms–> the rate you see on a loan contract

60
Q

real interest rate

A

nominal interest rate–the rate of inflation

61
Q

long-run economic growth

A

gradual process, real GDP per capita grows max few % per year

62
Q

rule of 70

A

the time it atkes a variable that grows gradually over time to double is approx 70÷by annual growth rate of that variable
–> example: if growth rate 2%–> takes 35 years to double
CAN ONLY BE APPLIED TO A POSITIVE GROWTH RATE !!!!!

63
Q

change in level

A

real GDP changed at certain point in time

64
Q

rate of change

A

statements about economic growth over a period of years

65
Q

(labour)productivity (definition)

A

output per worker, or sometimes per hour

66
Q

labour productivity (formula)

A

real GDP:number of people working

67
Q

3 sources of productivity growth:

A

1., physical capital
2. human capital
3. technological progress

68
Q

physical capital (definition)

A

human-made resources like buildings and machines–> makes workers more productive

69
Q

human capital (definition)

A

the improvement in labour created by education+knowledge embodied in the workforce

70
Q

technological progress

A

an advance in the technical means of the production of goods+services

71
Q

aggregate production function (definition)

A

a hypothetical function that shows how productivity (real capital per worker) depends on the quantities of physical capital per worker and human capital per worker as well as the state of technology

72
Q

diminishing returns to physical capital (definition)

A

when holding the amount of human capital per worker and the state of technology fixed, each succesive increase in the amount of physical capital per worker leads to a smaller increase in productivity

73
Q

growth accounting

A

estimates contribution of each major factor in the aggregate production function to economic growth
–> allows us to calculate the effects of greater physical+human capital on economic growth

74
Q

total factor productivity

A

amount of output that can be achieved with a given amount of factor inputs
–> when total factor productivity increases, the economy can produce more output with the same quantity of physical capital, human capital and labour
–> increases in total factor productivity are central to a country’s economic growth–> economists believe technological progress drives increases in total factory productivity

75
Q

3 reasons for differences in growth rates between countries

A
  1. rapidly add to their physical capital through high savings+investment spending
  2. increase their human capital by imporving educational institutions
  3. make fast technological progress through research and development
76
Q

6 ways government policies can increase economy’s growth rate:

A
  1. government subsidies to infrastructure
  2. government subsidies to education
  3. government subsidies to R&D
  4. maintaining a well-functioning financial system
  5. protection of property rights
  6. political stability and good governance
77
Q

convergence hypothesis

A

international differences in real GDP per capita tend to narrow over time–> because countries that start with lower GDP per capita tend to have higher growth rates

78
Q

sustainable long-run economic growth

A

long-run growth that can continye in the face of limited supply of natural resources and with less negative impact on thhe environment
–> some sceptics have expressed doubts about whether possible

79
Q

local environment degradation (definition)

A

affects a geographically limited area–> can be greatly reduced when sufficient political will+resources devoted to finding a solution

80
Q

why does the unemployment rate never fall to zero?

A

because even when people are just waiting ti sign their contract, they’re counted as unemployed

81
Q

why can efficiency wages also result in a higher rate of structural unemployment?

A

because efficiency wages are higher, there’s more incentive for people to start working there. Which can cause more supply than demand resultingin a shortage of jobs, aka a higher structural unemployment

82
Q

why can Goverment policies increase structural unemployment?

A

the benefits for laid-off workers can reduce the incentives to quickly look for a new job

83
Q

source of long-term economic growth:

A
  • (labour)productivity
84
Q

how do you decrease inflation rate? (2ways)

A
  • quantative tightening
  • increasing interest rates

Principle of economics (7 decks)

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