Chapters 1-5 Flashcards
Output
the level of production of the economy as a whole - and its rate of growth
Unemployment rate
the proportion of workers who are not employed and who are looking for a job
Inflation rate
the rate at which the average price of the goods in the economy is increasing over time
measure of aggregate output
GDP
What is GDP?
- The value of final goods and services produced in an economy during a given period.
- The sum of value added in the economy ( value of production minus value of intermediate good used in production)
- The sum of incomes in the economy during a give period
Nominal GDP
Quantities of finals goods multiplied by their current prices. As prices and quantities pro
Real GDP
Sum of the production of goods multiplied by a constant (i.e. price of goods for a base year). Weighted average of the output of all final goods
Labour force is…
the sum of employment and unemployment
The unemployment rate is….
ratio of number of people who are unemployed to the number of people in the labour force
What is the participation rate defined as?
ratio of the labour force to the total population of working age
The employment rate can be an indicator of what?
How efficiently the economy is utilising its resources
Inflation is…
the sustained rise in the general level of prices
Deflation is…
the sustained decline in the price level
GDP deflator
ratio of nominal GDP to Real GDP. It gives the rate at which the general level of prices changes over time
Consumer Price Index (CPI)
Considered the average price of consumption (as GDP assimilates some goods not sold to consumers but firms and also some goods are imported). Can be considered the cost of living.
Why do economists care about inflation?
There is no such thing as pure inflation and so prices and wages do not rise proportionately. Inflation can lead to distortions. Leads to changes in income distribution.
Is deflation good if inflation is considered bad?
No. Can create many of the same problems as inflation (distortion). Can also affect the ability of monetary policy to affect output.
Short run
a few years. Year to year movements on output driven by movements in demand
Medium run
Approx a decade. Economy tends to return to a level of output determined by supply factors such as capital stock, level of technology and size of labour force
Long Run
a few decades or more. Looks at things such as the education system, the savings rate, and the role of the government.
Composition of GDP
Consumption, investment, Gov spending, Net exports
Consumption
Goods and services purchased by consumers
Investment
Sum of non-residential investment and residential investment (new capital goods - NOT shares or gold)
Government Spending
The purchases by the national, regional and local governments. (does not include government transfers i.e. benefits and pensions)