Economics Test 2 Flashcards
Goals of the Economy
- Increase GDP
- Lower unemployment rate
- Balanced Budget
- Low Interest Rate
- Low Inflation Rate
- Balanced trade
- Lower taxes
to be considered unemployed:
you have to be out of work and looking for a job
Types of unemployment
market induced unemployment
policy induced unemployment
cynical unemployment
two types of market induced employment
frictional unemployment and structural unemployment
- people who are voluntarily out of work
- there is a job out there somewhere, you just do not have all the available information to fund it right away
frictional unemployment
- people put out of work due to technology or due to a permanent decrease in the demand for their labor skills
- you have to be retrained in order to get another job
structural
people put out of work due to government policies
policy induced unemployment
examples - minimum wage, unemployment compensation
Policy Induced unemployment + market induced unemployment =
natural rate of unemployment
- people who are put out of work due to a temporary decrease in the demand for their labor skills
- you don’t have to be retrained to get another job
cyclical unemployment
a rise in the general price level
inflation
CPI
consumer price index
measures the change in the cost of typical bundle of goods and sources overtime
CPI
the price you pay when you bought it
the nominal price
real price
the nominal price adjusted for inflation
real price =
nominal price * base year price index/current year price index
base year price index
the year you want to convert
current year price index
the year you want to change
GDP
gross domestic product
the final value of all the goods and services produced in the economy during the year
GDP
has to be produced in the current year
GDP
when GDP is negative two consecutive years, we are officially
in recession
GDP =
G + I + C + (E-I)
disposable income
income after taxes
consumption
how much of your disposable income you spend
savings
how much of your disposable income you save
APC
Average propensity
- percent of income spent at any given level of income . what percentage of your income you spend
APC
C/DI
APC
APS
S/DI
Average Propensity to save
For any given level of income, what of your income you save
MPC
marginal propensity to consume
for any given change in your income, what preventive of that you spend
MPC
/\C//\DI=
MPC
MPS
Marginal propensity to save
for an given change in income, what percentage of that change you save
MPS
/\S//\DI
MPS
DI-C=
s
how do you get APC
c/di
how do you get APS
s/di
how do you get MPC
/\C/ /\DI
how do you get MPS
/\S/ /\DI
how do you get M
1/1-MPC
NTM
is always one less than M
