Economic Measurese & Indicatiors Flashcards
GDP can be calculated in 2 ways
Expenditure approach &
Income approach
GDP is measured by
household
- Businesses
- Federal, state and local governments
- The foreign sectors
The discount rate set by the Federal Reserve is the
Rate that the central bank charges for loans to commercial banks
Frictional unemployment refers to unemployment resulting from
The time needed to match qualified job seekers with available jobs.
Cyclical unemployment results from:
A recession in the economy.
Expenditure Approach (GICE)
-Government expenditures
Capital investment
Consumption
Net exports
Valid tools that the Federal Reserve bank uses to control the supply of money
Raising or lowering the discount rate.
Changing the reserve ratio.
Selling government securities.
What are the 3 ways to lower money supply?
Lower the required reserve ratio, decrease the discount rate, buy bonds in the open market.
Structural Inflation
hen individuals do not have the qualifications or skills necessary to fill available jobs
The inflation rate measures:
The rate at which the overall price level increases.
stagflation
A combination of rising unemployment and a rising price level
Deflation is best defined as
A continuous decline in the overall price level.
Inflation can be caused by
Inflation can be caused by
What is one of the ways that Federal Reserve Policy would increase money supply?
By reducing the discount rate
CPI measures
Rate of Inflation
CPI’s primary purpose is to
Compare relative price changes over time.
Structural.
unemployment typically resulting from technological advances
What is the formula for Nominal Interest Rate
Real Interest Rate+ Inflation
Inflation Rate (FORMULA)
CPI(CY)-CPI(PY)/ PY X 100= Percentage
GDP Income Approach IPIRATED
Income of Proprietors Profits of Corporations Interest (Net) Rental Income Adjustments for net foreign income and miscellanious items -Taxes -Employee compensation (wages) -Depreciation
Demand-Pull Inflation
a) Increases in govt. spending
b) Decreases in taxes
c) Increases in Wealth
d) Increases in the money supply
Cost-Push Inflation
a) An increase in oil prices
b) An increase in the nominal wages
Relationship between Nominal Interest Rates & Inflation
They tend to move together
GNP Gross national product
Includes goods and services from oversees, Produced by a US company
Increases in Money Supply
When the FED purchases government securities, it increases the money supply
Decreases in Money Supply
When the FEd sells government securities, it decreases the money supply
Discount Rate
The discount rate is the interest rate that the Fed charges memeber banks for short-term loans
Raising discount rate dicourages borrowing
Lowering discount rates encourages borrowing
Required Reserve Ratio definition
The fraction of the total deposits banks must hold in reserve .
Raising the reserve decreases the money supply
Lowering the reserve increases the money supply
Demand for money is inversely related to interest rates
As interest rates rise demand of money goes down.
& opposite
Demand for a product tends to be price inelastic if:
Few good substitutes are available for the product
Demand for a product tends to be price elastic if:
There are many substitutes for that product
Price elasticity of demand
(Q2-Q1/Q1) / (P2-P1/P1)
2= New Price or New Quatity
1= Old Price & Old Quantity
