Chapter 3 Flashcards
A price index that measures changes in average prices of goods and services purchased by a typical consumer
consumer price index
Spending by households, including durable goods (washing machine, stereos, and cars), non-durable goods (food, clothing, and gasoline), and services (haircuts, medical care, education)
consumption
A continual decrease in the average price level
deflation
Economists use the term to refer to continual increases in real GDP or real GDP per capita. The term is often used in the press to mean increases in total spending
economic growth
Goods and services produced domestically and sold abroad
exports
The market value of all of the final goods and services produced annually within a nation
GDP
The sum of federal government, state, and local government purchases of goods and services counted in GDP. It includes public investments
government spending
Goods produced abroad and purchased domestically
imports
An increase in the overall level of prices of goods and services in the economy. Often expressed as an annual rate of increase
inflation
When used in reference to GDP or the entire economy, it is any spending intended to increase future output. For example, new factories/machines, inventory
investment
The number of individuals who have jobs plus the number who are actively looking for work
labor force
Exports of goods and services minus imports of goods and services
net exports
The real value of all final goods and services produced in an economy in a year. Measured in dollars adjusted for changes in the overall price level
real GDP
Real GDP per person; real GDP divided by population
Real GDP per capita
An individual is counted as unemployed if he or she does not have a job and is actively looking for work
Unemployed
The percentage of the labor force that is unemployed
unemployment rate
formula for GDP
GDP = C + I + G + (EX – IM)
When comparing changes over time, ___ GDP is a more accurate measure of changes in production as it removes the effects of changes in prices.
real
___ is a continual rise in the overall price level and is most often measured by changes in the ___
inflation; consumer price index
Economists measure growth in our economy by looking at ___ , that is, the actual production of goods and services valued at a base year’s prices rather than current prices
real GDP
GDP calculated using current year prices is often called _____ GDP
nominal
GDP calculated using base year prices is called ____ GDP
real
If the net exports balance is positive, we are ___ more than we are ___
exporting; importing
Are social security payments and unemployment assistance included in GDP?
No, payments do not represent any new production of goods and services
How do you calculate the unemployment rate?
Number of individuals unemployed (people who do not currently have a job AND are currently looking for a job)
/
labor force ( those employed + those looking for a job)
If the labor force increases, but the number of people unemployed stays the same, what happens to the unemployment rate?
decreases
During times of low employment, some people get discouraged, stop looking for work, and go back to school. How does going back to school affect the labor force?
It decreases the number in the labor force
The typical measure used to calculate inflation is CPI. CPI uses what to calculate price levels?
A typical basket of goods purchased by consumers
Goods that are not for final use, that are used to make something else
intermediate goods, not counted separately in the GDP
if there is inflation, the nominal GDP is ___ than the real GDP
greater
if there is deflation, the nominal GDP is ___ than the real GDP
less
When there is deflation, the nominal GDP is ___ estimated (over or under)
under
When there is inflation, the nominal GDP is ___ estimated (over or under)
over
Inflation is calculated using ___
CPI (consumer price index), basket of goods
Is GDP affected by unemployment and inflation?
Yes, unemployment would be a dot below the curve on the graph because not all resources are being used. Inflation would move the curve inwards toward the center because people are buying less
specializing in something that you are relatively more efficient in producing
comparative advantage
Comparative advantage means you are relatively more efficient, which ___ opportunity cost
lowers
If the person is better at both things they have ____ advantage
absolute
If the opportunity cost is less for someone to do a task (even if they aren’t more efficient at it) they have ___ advantage
comparative
Can both people have a comparative advantage?
No
Can one person have comparative advantage in both tasks?
No
Can you have absolute advantage in both tasks?
Yes
Can you have absolute disadvantage in both tasks?
Yes
When comparing changes over time, ___ GDP is a more accurate measure of changes in production as it removes the effects of changes in prices
real
