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BEC - Economic Concepts > Economic Measures/Indicators > Flashcards

Economic Measures/Indicators Flashcards

1
Q

Common Economic Measures

A
  1. Real GDP
  2. unemployment rate
  3. inflation rate
  4. interest rates
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2
Q

NIPA

A

National Income and Product Accounting - developed by Us Dept of Commerce to monitor health and performance of the U.S. economy

measuring GDP - expenditure and income approach are calculated with NIPA

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3
Q

Combined Input of the 4 sectors are called GDP

A

Households

Business

Federal, State, and Local Govts

Foreign Sector

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4
Q

Expenditure Approach

A

Product Approach (at market prices)

GDP is the sum of the following components:

Govt purchases of goods and invoices

Gross private domestic investment

Personal Consumption expenditures

Net Exports

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5
Q

Income Approach

A

Flow of earnings and other resources that generate domestic income

Value of resources costs and incomes generated during the measurement period.

Sum of:
Income of proprietors
Profits of corporations
Interest (net)
Rental Income
Adjustments for net foreign income
Taxes
Employee compensation
Depreciation
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6
Q

Net Domestic Product

A

GDP minus depreciation

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7
Q

Gross National Product

A

defined as the market value of final goods and service produced by residents of a country in a given time period

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8
Q

Net National Product

A

GNP minus economic depreciation

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9
Q

National Income

A

NNP less indirect business taxes

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10
Q

Personal Income

A

income received by households and noncorporate businesses

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11
Q

Disposable Income

A

personal income less personal taxes

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12
Q

Unemployment Rate

A

ratio of the number of people classified as unemployed to the total labor force. (all non-institutionalized individuals 16 years or older who are working or looking for work)

(# of unemployed/total labor force) X 100

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13
Q

Frictional Unemployment

A

normal unemployment resulting from workers routinely changing jobs or from workers being temporarily laid off

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14
Q

Structural Unemployment

A

occurs when:

a. jobs available in the market do not correspond to the skills of the workforce
b. workers don’t live where jobs are located

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15
Q

Seasonal Unemployment

A

seasonal changes in the demand and supply for labor

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16
Q

Cyclical Unemployment

A

amount of unemployment resulting from declines in real GDP during period of contraction or recession or in any period when the economy fails to operate at is potential

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17
Q

Natural Rate of Unemployment

A

sum of frictional, structural, and seasonal unemployment

the normal rate

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18
Q

Full Employment

A

level of unemployment when there is no cyclical unemployment

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19
Q

Inflation

A

increase in the general prices of goods and services

Increase in AD or decrease in AS

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20
Q

Deflation

A

decrease in the general prices of goods and services.

Decrease in AD or increase in AS

Firms experience excess production capacity

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21
Q

Inflation/Deflation rate

A

percentage change in consumer price index (CPI) from one period to the next

22
Q

CPI

A

overall cost of a fixed basket of goods and services purchases by an average household

(current cost of market basket/base year cost of market basket) X 100

23
Q

Inflation rate

A

percentage change in CPI from one period to next

(CPI (this period)-CPI(last period) )/ CPI (last period) X 100

24
Q

Producer Price Index

A

overall cost of basket of goods and services purchased

25
Q

Demand Pull Inflation

A

Caused by increases in aggregate demand.

Can be caused by:

a. increases in gov’t spending
b. decreases in taxes
c. increases in wealth
d. increases in money supply

26
Q

Cost Push Inflation

A

caused by reductions in short-run aggregate supply.

Can be caused by:

a. an increase in oil prices
b. an increase in nominal wages

27
Q

Deflation

A

caused by shifts in aggregate demand or short run aggregate supply

28
Q

Inflation

A

Inverse relationship with purchasing power

29
Q

Monetary assets and liabilities

A

are fixed in dollar amounts

30
Q

Value of nonmonetary assets and liabilities

A

fluctuates with inflation and deflation

31
Q

Holding monetary assets

A

Lost Purchasing Power (bad)

32
Q

Holding Monetary Liabilities

A

Pay back debt with $ worth less (good)

33
Q

stagflation

A

combination of falling national output and a rising price level

34
Q

The Philips Curve

A

when AD increases it causes inflation prices to increase and unemployment to decrease

trade off between inflation and unemployment

35
Q

Budget Deficit

A

financed by govt borrowing, which affects interest rates

36
Q

Cyclical Budget Deficit

A

temporarily low economic activity

37
Q

Structural Budget Deficit

A

structural imbalance between govt spending and revenue

38
Q

Budget Surplus

A

occurs when govt revenues exceed govt spending during the year

39
Q

Nominal Interest rate

A

not adjusted for inflation
amount of interest paid or earned measured in current dollars

when economy experiences inflation, nominal interest rates are not a good measure of how much borrowers really pay or lenders really receive

Real interest rate + inflation

40
Q

Real Interest Rate

A

the nominal interest rate minus the inflation rate.

Measure of the purchasing power of interest earned or paid

Nominal interest rate - Inflation rate

41
Q

Money Supply

A

defined as the stock of all liquid assets available for transactions in the economy at any give point in time

42
Q

M1

A

money that is used for purchases of goods and services

includes coins, currency, checkable deposits and travelers checks

doesn’t include savings accounts or certificates of deposit (CDs)

43
Q

M2

A

M1 plus liquid assets that cannot be used as a medium of exchange but that can be converted easily into checkable deposits or other components

include CDs less than 100,000, money market deposit accounts at banks, mutual fund accounts, and savings accounts

44
Q

M3

A

M2 as well as time certificates of deposit of $100,000 or more.

45
Q

Monetary policy

A

the use of the money supply to stabilize the economy

46
Q

Federal Reserve controls the money supply through

A
  1. Open Market Operations (OMO)
  2. Changes in the Discount Rate
  3. Changes in the Required Reserve Ratio (RRR)
  4. Interest Rates and the Demand for and Supply of Money
47
Q

Open Market Operations

A

purchase and sale of govt securities

Increase in MS, lower IR, and increase AD - purchase of govt securities

Decrease in MS, increase IR, and decrease AD - sell govt securities

48
Q

Change in the Discount Rate

A

Raises the DR discourages borrowing by member banks and decreases the MS

Lowering DR encourages borrowing by member banks and increases the MS

49
Q

Changes in the Required Reserve Ratio

A

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

Raising the reserve decreases the money supply

Lowering the reserve increases the money supply

50
Q

Equilibrium Interest Rate

A

demand for money intersects the supply of money

51
Q

Expansionary Monetary Policy

A

Increase in the money supply

Results when the Fed increases the money supply

Causes:
IR to fall
Falling IR cause stimulation of firm investment and household consumption
Increase in AD
GDP increase, prices increase,unemployment decrease

52
Q

Contractionary Monetary Policy

A

Decrease in the money supply

Causes:
IR to rise
reduce level of firm investment and household consumption
decrease AD
real GDP to fall, unemployment to rise, prices decrease

BEC - Economic Concepts (3 decks)

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