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Business > Economic Measurements > Flashcards

Economic Measurements Flashcards

1
Q

What are the 4 economic measures?

B5-14

A

1- Real GDP
2- unemployment rates
3- inflation rates
4- interest rates

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2
Q

What are the 2 methods of measuring GDP?

B5-14

A

1- Expenditure Approach

2- Income Approach

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3
Q

What is the mnemonic for Expenditure Approach to measure GDP?

B5-14

A

“GICE” mnemonic

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4
Q

What is the Expenditure Approach to measure GDP?
(GICE mnemonic)

B5-14

A

G- Government purchases
I- gross private domestic Investment (business)
C- Consumption (households)
E- net Exports (+net exports; -net imports)

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5
Q

What is the mnemonic for Income Approach to measure GDP?

B5-15

A

“I PIRATED” mnemonic

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6
Q

What is the Income Approach to measure GDP?
(I PIRATED mnemonic)

B5-15

A

I– Income proprietors

P-- Profits of corps
I-- Interest (net)
R-- Rental income
A-- Adj. for net foreign income
T-- Taxes (indirect business taxes)
E-- Employee compensation (wages)
D-- Depreciation (capital consumption allowance)
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7
Q

What is Net Domestic Product (NDP)?

B5-16

A

GDP minus depreciation

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8
Q

What is Gross National Product (GNP)?

B5-16

A

Market value of final goods and services produced by residents of a country.

  • -includes that produced overseas by US firms
  • -excludes that produced domestically by foreign firms
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9
Q

Gross Domestic Product vs Gross National Product
GDP vs GNP

B5-16

A

GDP
-all that produced within the borders of the US

GNP

  • includes that produced overseas by US firms
  • excludes that produced domestically by foreign firms
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10
Q

What is Net National Product (NNP)?

B5-16

A

GNP minus economic depreciation

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11
Q

What is National Income (NI)?

B5-16

A

NNP less indirect business taxes

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12
Q

What is Personal Income (PI)?

B5-16

A

The income received by households and noncorporate businesses.

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13
Q

What is Disposable Income (DI)?

B5-16

A

Personal Income less Personal taxes

–the household income available to spend or save

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14
Q

How to calculate Unemployment Rate?

B5-16

A

Unemployment Rate = (No. of unemployed/ Total labor force) x 100

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15
Q

Frictional Unemployment
definition

B5-16

A

Normal unemployment resulting from workers routinely changing jobs or from workers being temp laid off

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16
Q

Structural Unemployment
definition

B5-17

A

Normal unemployment that occurs when:

  • -jobs available do not correspond to skills of the workforce
  • -unempl. workers do not live where jobs are located
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17
Q

Seasonal Unemployment
definition

B5-17

A

Normal unemployment resulting from seasonal changes in the demand and supply of labor

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18
Q

Cyclical Unemployment
definition

B5-17

A

Amount of unemployment resulting from declines in Real GDP during contraction or recession.
–caused by decrease in AD or SRAS

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19
Q

What is Natural Rate of Unemployment?

B5-17

A

sum of Frictional, Structural, and Seasonal Unemployment

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20
Q

Full Employment
definition

B5-17

A

The level of unemployment when there is no cyclical unemployment.

  • -does not mean zero unempl.
  • -there is still frictional, structural, and seasonal unempl.
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21
Q

Inflation
definition

B5-17

A

increase in AD or decrease in AS

–inc in the general prices of goods/svcs

22
Q

Deflation
definition

B5-17

A

decrease in AD or increase in AS

–dec in the general prices of goods/svcs

23
Q

How is the Inflation/Deflation Rate measured?

B5-18

A

It’s typically measured as the % change in the Consumer Price Index (CPI) from one period to next

24
Q

Consumer Price Index (CPI)
definition

B5-18

A

A measure of the overall cost of a fixed basket of goods/svcs purchased by an average household

25
Q

Consumer Price Index (CPI)
calculation

B5-18

A

CPI = (Current cost of market basket/ Base yr cost of market basket) x 100

26
Q

Inflation Rate
calculation

B5-18

A

Inflation Rate= [(CPI cy- CPI py)/ CPI py] x 100

27
Q

What causes Demand-Pull Inflation?

B5-19

A

Increase in AD

  • -inc gov spending
  • -dec taxes
  • -inc in wealth
  • -inc in money supply
28
Q

What causes Cost-Push Inflation?

B5-19

A

Decrease in AS

  • -inc in oil prices
  • -inc in nominal wages
29
Q

Monetary Assets/Liab
definition

B5-20

A

Are fixed in dollar amount

–cash, AR, notes payable

30
Q

Non-monetary Assets/Liab
definition

B5-20

A

Fluctuate with inflation and deflation.

–buildings, land, machines, advances

31
Q

Budget Deficit
definition

B5-22

A

when a country spends more than it takes in

32
Q

How are budget deficits Financed?

B5-22

A

By gov borrowing which affects interest rates

33
Q

What causes a Cyclical Budget Deficit?

B5-22

A

caused by temp. low economic activity

34
Q

What causes Structural Budget Deficit?

B5-22

A

caused by a structural imbalance between gov spending and revenue

35
Q

Budget Surplus
definition

B5-22

A

when gov revenues exceed spending

36
Q

Nominal Interest Rate vs Real Interest Rate

B5-23

A

Nominal
–not adj. for inflation

Real
–adj. for inflation

37
Q

How to calculate Real Interest Rate?

B5-23

A

Real Interest Rate= Nominal interest rate- inflation rate

38
Q

Money
definition

B5-24

A

the set of liquid assets that are generally accepted in exchange for goods/svcs.

39
Q

Money Supply
definition

B5-24

A

the stock of all liquid assets available for transactions in the economy at a given point

40
Q

Money Supply
M1 definition

B5-24

A

Money for purchasing goods/svcs

–Ex: coins, currency, checkable deposits, traveler’s checks

41
Q

Money Supply
M2 definition

B5-24

A

M1 plus liquid assets that cannot be used as medium of exchange, but can be converted to M1.

–Ex: CD less than $1k, saving acct, mutual funds, money market deposits

42
Q

Money Supply
M3 definition

B5-24

A

M2 plus time CD of $1k or more

43
Q

What is Monetary Policy?

B5-25

A

the use of the money supply to stabilize the economy

44
Q

Monetary Policy
What causes an Increase in the Money Supply?

B5-25

A

Fed Reserve purchases gov securities

MS inc, IR dec, AD inc

45
Q

Monetary Policy
What causes a Decrease in the Money Supply?

B5-25

A

Fed Reserve sells gov securities

MS dec, IR inc, AD dec

46
Q

Monetary Policy
What happens when Discount Rate rises?

B5-25

A

discourages banks from borrowing, Decreases the Money Supply

MS dec, IR inc, AD dec

47
Q

Monetary Policy
What happens when Discount Rate lowers?

B5-25

A

encourages banks to borrow, Increases the Money Supply

MS inc, IR dec, AD inc

48
Q

Monetary Policy
Required Reserve Ratio (RRR) definition

B5-25

A

the fraction of total deposits bank must hold in reserve (cannot loan)

49
Q

Monetary Policy
Raising the reserve requirement rate

B5-25

A

decreases the money supply

50
Q

Monetary Policy
Lowering the reserve requirement rate

B5-25

A

increases the money supply

Business (14 decks)

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