Economic Measures and Indicators (B5:M2) Flashcards
under the expenditure approach, how is GDP calculated? GICE
sum of:
govt purchases
investment (by private industry)
consumer spending
exports (net)
what does an expansionary monetary policy actually do?
increases the money supply
what are the 3 ways the Fed can increase money supply?
buy govt securities in the open market
lower the discount rate
lower the required reserve ratio
what is stagflation?
its when the economy suffers a recession (falling output, rising unemployment and price level)
in order to reduce inflationary pressures, what must the Fed do?
decrease the money supply. Two ways of doing that is to increase margin requirements and increase interest rates
what does the consumer price index (CPI) measure? How is it calculated?
the rate of inflation
(current cost of market basket / base year cost of market basket) x 100
what does it mean when an economy is operating at full employment?
there is no cyclical unemployment
what is the velocity of money?
rate at which money is exchanged in the economy
nominal GDP / money supply
what effect can large government borrowing have on the economy?
put upward pressure on interest rates
real interest rate = ?
nominal interest rate - inflation rate
what is inflation?
an increase in price levels
how do you adjust an amount for inflation?
amount / (1 + inflation rate)
under the income approach, how is GDP calculated? I PIRATED
sum of:
income of proprietors profits of corporations interest (net) rental income adjustments for net foreign income taxes (indirect business) employee compensation depreciation
natural rate of unemployment = ?
structural + frictional + seasonal
when is an economy operating at its natural rate of unemployment?
when cyclical unemployment is 0
