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Econ202 > Exam 1 > Flashcards

Exam 1 Flashcards

1
Q

gross domestic product

A

the market value of all final goods and services produced in a country during a period of time, typically one year

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2
Q

market value=

A

price x quantity

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3
Q

GDP=

A

total production=total income=total spending

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4
Q

components of GDP

A

consumption, investment, gov. purchases, net exports

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5
Q

consumption

A

largest portion of GDP. services, nondurable goods, durable goods

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6
Q

investment

A

spending on new homes, firm spending on new factories or equipment, NOT stocks or bonds

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7
Q

government purchases

A

federal, state, and local spending on things like highways or teacher salaries. NOT transfer payments

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8
Q

net exports=

A

exports-imports (can be negative)

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9
Q

GDP equation

A

Y=C+I+G+NX

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10
Q

real GDP=

A
  • measures current prices at a base year

- current quantities x base year prices

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11
Q

GDP deflator=

A
  • measures price level

- nominal GDP/real GDP x 100

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12
Q

adult working age population

A

every single person in the country 16 and above that are not instituionalized

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13
Q

labor force=

A

number of people employed + number of people unemployed

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14
Q

employed

A

people who worked at least 1 hour in the week

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15
Q

unemployed

A

someone that is not currently working but is available for work and has actively looked for a job within the past month

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16
Q

not in the labor force=

A

adult working population-labor force

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17
Q

discouraged worker

A

someone who would like to work but has given up looking for jobs

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18
Q

unemployment rate=

A

unemployed/labor force x 100

(also)- unemployed/employed + unemployed x 100

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19
Q

labor force participation rate=

A

labor force/adult working age population x 100

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20
Q

employment to population ratio=

A

employed/working age population x 100

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21
Q

frictional unemployment

A
  • related to the job search
  • typically short term
  • can be seasonal (lifeguard)
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22
Q

structural unemployment

A
  • related to mismatch in skills

- tends to be long term

23
Q

cyclical unemployment

A
  • caused by a business cycle recession

- when cyclical unemployment=0, the economy is at full employment

24
Q

natural rate of unemployment

A
  • the unemployment rate when the economy is at full employment
  • the US is between 5 and 5.5%
25
Q

causes of unemployment

A
  • unemployment insurance
  • minimum wage
  • labor unions
  • efficiency wages
26
Q

Consumer Price Index (CPI)

A

a measure of the average change over time in prices a typical urban family of 4 pays for the goods/services they buy

27
Q

CPI=

A

cost of basket in current year/cost of basket in base year x 100

(basket meaning the total price of everything the family has in their cart at Walmart)

28
Q

Inflation rate in year 2=

A

CPI in year 2 - CPI in year 1/ CPI in year 1 x 100

CPI is not the inflation, but inflation is the % change in CPI

29
Q

substitution bias

A

consumers may change their purchasing habits away from goods that have increased in price

30
Q

increase in quality bias

A

difficult to separate improvement in quality from increase in price (smartphones)

31
Q

new product bias

A

the basket of goods changes only every 10 years. Big delay in
including new goods like cell phones.

32
Q

outlet bias

A

CPI uses the full retail price but people may buy from discount stores or online to get things cheaper than full price

33
Q

Producer Price Index

A

same idea as CPI but it reflects the cost of a basket of goods purchased by producers

34
Q

PPI=

A

cost of basket in current year (for producers) / cost of basket in base year x 100

35
Q

nominal value

A

value measured in current year dollars

36
Q

real value

A

value that is adjusted for inflation

37
Q

real value=

A

nominal value/ CPI x 100

38
Q

nominal interest rate

A

the interest rate that a bank quotes for a loan

39
Q

real interest rate

A

the nominal interest rate adjusted for inflation

40
Q

Real Interest rate=

A

nominal interest rate - inflation

41
Q

anticipated inflation

A
  • increased real cost of holding cash
  • firms have menu costs (takes time for firms to change prices)
  • investors are taxed on nominal returns rather than real returns which can result in higher tax being due
42
Q

unanticipated inflation

A

when its hard to predict inflation, makes it hard to make good borrowing and lending decisions

43
Q

real GDP per capita

A
  • the amount of production in the economy per person adjusted for changes in price level
  • measures standard of living
44
Q

real GDP per capita=

A

real GDP/population

45
Q

economic growth

A

the process by which rising productivity increases the average standard of living (increases in real GDP per capita)

46
Q

growth rate between any 2 years=

A

value in year 2 - value in year 1 / value in year 1 x 100

47
Q

rule of 70

A

approximate time to double = 70/(growth rate in percent form)

48
Q

financial system

A

the system of financial markets and financial intermediaries through which firms acquire funds from households

49
Q

risk sharing

A

allows investors to spread money over many different assets thereby reducing the risk for any single investor while maintaining a high expected return

50
Q

liquidity

A

allows savers to quickly convert investments to cash

51
Q

information

A

prices represent beliefs about future revenue stream. aggregation of info makes funds flow to the right firms

52
Q

private savings

A

a household income that is NOT spent

Sprivate= Y +TR - C - T

53
Q

public savings

A

whatever the government brings in but does not spend

Spublic = T -G - TR

Econ202 (1 decks)

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