Chapter 2 - Key Concepts Flashcards
GDP
The GDP is the the total market value of all final goods and services produced within an economy during a given year
Stock
at a point in time (Capital, Government debt)
Corresponding flow
during a given period (Budget deficit/surplus, net Investment )
Nominal GDP
Nom. GDP is the sum of the quantities of final goods produced times their current price
Reasons for growing GDP
a) the production of most goods increases
b) the price of most goods increases
Real GDP
Real GDP is the sum of quantities of final goods times constant (not current) prices
Employment
Employment is the number of people who have a job
Unemployment
UE is the number of people who do not have a job but are looking for one
Labor force
LF is the sum of employment and unemployment
Unemployment rate
unemployment rate = unemployment / Labor force
problems with using unemployment surveys
a) misreporting
b) people are ashamed
participation rate
ratio of the Labor force to the total population of working age
why do Economists care about Unemployment?
a) direct effect on the welfare of the unemployed
b) a signal that the economy is not using its human resources efficiently
problem of very low unemployment
Labor shortage
why do Economists care about inflation?
a) inflation affects income distribution
b) inflation leads to distortions (bracket creep in taxes)
