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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
Consumer Price Index (CPI) calculation B5-18
CPI = (Current cost of market basket/ Base yr cost of market basket) x 100
26
Inflation Rate calculation B5-18
Inflation Rate= [(CPI cy- CPI py)/ CPI py] x 100
27
What causes Demand-Pull Inflation? B5-19
Increase in AD - -inc gov spending - -dec taxes - -inc in wealth - -inc in money supply
28
What causes Cost-Push Inflation? B5-19
Decrease in AS - -inc in oil prices - -inc in nominal wages
29
Monetary Assets/Liab definition B5-20
Are fixed in dollar amount | --cash, AR, notes payable
30
Non-monetary Assets/Liab definition B5-20
Fluctuate with inflation and deflation. | --buildings, land, machines, advances
31
Budget Deficit definition B5-22
when a country spends more than it takes in
32
How are budget deficits Financed? B5-22
By gov borrowing which affects interest rates
33
What causes a Cyclical Budget Deficit? B5-22
caused by temp. low economic activity
34
What causes Structural Budget Deficit? B5-22
caused by a structural imbalance between gov spending and revenue
35
Budget Surplus definition B5-22
when gov revenues exceed spending
36
Nominal Interest Rate vs Real Interest Rate B5-23
Nominal --not adj. for inflation Real --adj. for inflation
37
How to calculate Real Interest Rate? B5-23
Real Interest Rate= Nominal interest rate- inflation rate
38
Money definition B5-24
the set of liquid assets that are generally accepted in exchange for goods/svcs.
39
Money Supply definition B5-24
the stock of all liquid assets available for transactions in the economy at a given point
40
Money Supply M1 definition B5-24
Money for purchasing goods/svcs --Ex: coins, currency, checkable deposits, traveler's checks
41
Money Supply M2 definition B5-24
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
Money Supply M3 definition B5-24
M2 plus time CD of $1k or more
43
What is Monetary Policy? B5-25
the use of the money supply to stabilize the economy
44
Monetary Policy What causes an Increase in the Money Supply? B5-25
Fed Reserve purchases gov securities | MS inc, IR dec, AD inc
45
Monetary Policy What causes a Decrease in the Money Supply? B5-25
Fed Reserve sells gov securities | MS dec, IR inc, AD dec
46
Monetary Policy What happens when Discount Rate rises? B5-25
discourages banks from borrowing, Decreases the Money Supply | MS dec, IR inc, AD dec
47
Monetary Policy What happens when Discount Rate lowers? B5-25
encourages banks to borrow, Increases the Money Supply | MS inc, IR dec, AD inc
48
Monetary Policy Required Reserve Ratio (RRR) definition B5-25
the fraction of total deposits bank must hold in reserve (cannot loan)
49
Monetary Policy Raising the reserve requirement rate B5-25
decreases the money supply
50
Monetary Policy Lowering the reserve requirement rate B5-25
increases the money supply

Business (14 decks)

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