Discussion handouts Flashcards
Movement along the supply curve
A change in the quantity supplied of a good that is the result of a change in that good’s price
Law of Demand
Price goes up
Quantity demanded goes down
*creates downward sloping demand curve
Substitution effect
If the price of good A falls relative to price of good B (substitute)
then quantity demanded for good A increases relative to quantity demanded for good B
Income effect
If the price of good A (normal) falls
then Quantity demanded for good A increases as the purchasing power of consmers has increased
Possible demand shifters
Income
Price of related goods
Preferences
Population
Expectations
GDP defintion
the market value of all final goods and services produced in a country during a period of time, typically over one year
GDP is measured using ____________
market values, not quantities
GDP includes only ______________
final goods, not intermediate goods
final good/service
Purchased by its final user and is not included in the production of any other good or service
Intermediate good/service
A good or service used as an input into the production of another good or service
GDP formula
GDP (Y) = C + I + G + NX
Consumption
Investment
Government purchases
Net exports (exports - imports)
Value added
Refers to the additional market values a firm gives to a product
GDP calculation: (price for which the firm sells a good) - (price it paid other firms for intermediate goods)
Income approach: GDP calculation
GDP = Wages + Interest + Rent + Profits
Real GDP
Real GDP = Quantities (current) x Price (base year)
Nominal GDP
Nominal GDP = Quantities (current) x Prices (current)
GDP deflator
A measure of price level
_Nominal GDP _
Real GDP X100
*Used to describe inflation vs. deflation
Gross National Product (GNP)
The value of final goods and services produced by residents of the U.S, even if the production takes place outside of the US
*does not include domestic production by non U.S firms
Personal Income
Income received by households, not earned by the firms, add transfer payments
Disposable personal income
Personal income - tax
Unemployment rate
Measures the percentage of the labor force that is unemployed
number of unemployed
labor force X100
Labor force includes:
employed + unemployed
Underemployed
People who have a part time job but are looking for a full time job
Employed includes:
Full time + part time
Labor force participation rate
Measures the percentage of the working age population that is in the labor force
labor force
working age population X100
Note: Labor Force
Refers to the employed and unemployed individuals of working age
People not included in labor force: students, retirees, prisoners, stay-at-home parents, discouraged workers, etc.
Frictional unemployment
Imperfect information and temporary periods of unemployment while workers are changing jobs
Structural unemployment
Arises from a persistent mismatch between the job skills or attributes of workers and the requirement of jobs
“retraining”
Cyclical unemployment
Caused by changes in the business cycle
Full unemployment
frictional unemployment + structural unemployment
Real GDP =
Nominal GDP
GDP deflator X 100
CPI
Average of the prices of some commonly consumed goods and services
Value basket current year
Value basket base year X100
Value basket in CPI
Hold quantities the same to see the change in price of the basket
Inflation =
Change in deflator
Deflator base
Change in CPI
CPI base
Real interest rate
Real interest rate = Nominal interest rate - Inflation rate
Unanticipated inflation
An increase in the price level that comes as a surprise, at least for most individuals
Anticipated inflation
A widely excepted change in the price level
Introduction of new goods and services into the economy
causes the CPI to overestimate the cost of living
because:
New goods cost less than existing goods
Consumers start switching to new goods
Adjusting for effects of inflation:
Value (Y2) = Value (Y1) x CPI (Y2)
CPI (Y1)
