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Econ 211 > Exam 2 > Flashcards

Exam 2 Flashcards

1
Q

GDP definition

A

Gross Domestic Product: is the market value of all final goods and services produced within a country in a given period of time

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2
Q

GDP Calculation

A

Y=C+I+G+NX

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3
Q

Net Exports

A

=exports-imports

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4
Q

Real GDP

A

To obtain a measure of the amount produced that is not affected by changes in prices, we use the real GDP, which is the production of goods and services valued at constant prices.

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5
Q

Nominal GDP

A

The production of goods and services valued at current prices

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6
Q

GDP deflator

A

Nominal/real x 100

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7
Q

Inflation rate

A

(GDP deflator in year 2 - GDP deflator in year 1)/ GDP deflator in year 1 x100

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8
Q

Final good

A

Hallmark card or a dress

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9
Q

Intermediate good

A

Paper or fabric

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10
Q

Expenditure approach

A

The GDP is calculated by summing up all of the expenditures made on final goods and services

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11
Q

Expenditure

A

An amount of money spent

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12
Q

Problems with GDP

A
  • Does not allow for the health of our children, the quality of their education or the joy of their play. does not include beauty of poetry or strength of marriages. It measures everything in short except that which makes life worthwhile.
  • doesn’t measure leisure.
  • doesnt include volunteer work
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13
Q

CPI definition

A

Consumer price index: is a measure of the overall cost of the goods and services bought by a typical consumer.

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14
Q

CPI calculation

A

(Price of basket of goods and services in current year/price of basket in base year) x 100

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15
Q

Steps for CPI to be aware of

A
  1. Fix the basket: determine which price is most important to the typical consumer. If the typical consumer buys more hot dogs than hamburgers then the price of hot dogs is more important.
  2. Find the price: find the prices of the goods and services in the basket at each point in time.
  3. Compute the basket’s cost: use the data on prices to calculate the cost of the basket o the goods and services at different times.
  4. Choose a base year: designate one year as the base & compare other years to it.
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16
Q

Turning dollar figures from year T into today’s dollars

A

Amount in year T dollars x (price level today/price level in year T)

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17
Q

Nominal interest rate

A

The interest rate that measures the change in dollar amounts

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18
Q

Real interest rate

A

The interest rate corrected for inflation

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19
Q

Calculation of real interest rate

A

Real interest rate= nominal rate- inflation rate

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20
Q

Indexed

A

The automatic correction by law or contract of a dollar amount for the effects of inflation

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21
Q

Accuracy and bias of CPI

A
  • substitution bias: when prices change from one year to the next, they do not all change proportionately: some prices rise more than others.
  • introduction of new goods: when a new good is introduced, consumers have more variety from which to choose, and this in turn reduces the cost of maintaining the same level of economic well-being.
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22
Q

Productivity

A

The quantity of goods and services produced from each unit of labor input

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23
Q

Productivity measures

A

Standard of living

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24
Q

Physical capital

A

The stock of equipment and structures that are used to produce goods and services

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25
Q

Human capital

A

The knowledge and skills that workers acquire through education, training and experience

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26
Q

Natural resources per worker

A

The inputs into production of goods and services that are provided by nature, such as land, rivers, and mineral deposits

27
Q

Labor force

A

The total number of workers, including both the employed and the unemployed

28
Q

Unemployment

A

This category includes those who were not employed, were available for work, and had tried to find employment during the previous four weeks. It also includes those waiting to be recalled to a job from which they had been laid off.

29
Q

Not in the labor force

A

Full-time students, homemakers, retirees

30
Q

Labor force

A

Number of employed + number of unemployed

31
Q

Unemployment rate

A

Number of unemployed / labor force x 100

32
Q

Natural rate of unemployment

A

The normal rate of unemployment around which the unemployment rate fluctuates

33
Q

Cyclical unemployment

A

The deviation of unemployment from its natural rate

34
Q

Discouraged workers

A

Individuals who would like to work but have given up looking for a job

35
Q

Frictional unemployment

A

Unemployment that results because it takes time for workers to search for the jobs that best suit their tastes and skills

36
Q

Structural unemployment

A

Sunemployment that results because the number of jobs available in some labor markets is insufficient to provide a job for everyone who wants one

37
Q

Efficiency wages

A

Above-equilibrium wages paid by firms to increase worker productivity

38
Q

Technological knowledge

A

Society’s understanding of the best ways to produce goods and services

39
Q

The Production Function

A

Y=AF(L,K,H,N)

40
Q

Diminishing returns

A

The property whereby the benefit from an extra unit of an input declines as the quantity of the input increases

41
Q

Catch-up effect

A

The property whereby countries that start off poor tend to grow more rapidly than countries that start off rich

42
Q

Investment from abroad

A
  • a capital that is owned and operated by a foreign entity is called foreign direct investment.
  • an investment that is financed with foreign money but operated by domestic residents is called foreign portfolio investment.
43
Q

Education

A
  • investment in human capital
  • government policy can enhance the standard of living is to provide good schools and to encourage the population to take advantage
  • has an opportunity cost: when students are in school, they forgo the wages they could have earned as members of the labor force
44
Q

Health and nutrition

A
  • human capital: expenditures that lead to a healthier population.
  • healthier workers are more productive
45
Q

Property rights and political stability

A

-another way policy makers can foster economic growth is by protecting property rights and promoting political stability

46
Q

Free trade

A
  • a type of technology
47
Q

Research and development

A
48
Q

Population and growth

A
  • a large population means more workers to produce goods and services
  • higher population = more people to consume those goods and services
49
Q

Actual GDP

A
  • can exceed potential GDP only temporarily as it approaches and then recedes from a business cycle peak
  • fluctuates around potential GDP
  • determined by same factors as potential GDP
  • expenditure
50
Q

Potential GDP

A

-the sustainable upper limit of production because real GDP can exceed potential gdp only temporarily as it approaches then recedes from a business cycle peak.

51
Q

Cost of unemployment

A

The output lost due to the fact the economy is not running at full employment

52
Q

CPI

A

Is the measure of average prices paid by consumers for a fixed basket of goods and services

53
Q

CPI measures the changes of the

A

Prices paid by consumers for a fixed market basket of consumer goods and services

54
Q

CPI categories (8)

A
  1. Food and beverages (breakfast cereal, milk, coffee, wine etc)
  2. Housing (renter’s cost of housing, homeowner’s cost of housing, fuel oil, bedroom furniture)
  3. Apparel (men’s shirts and sweaters, women’s dresses, jewelry)
  4. Transportation (airline fares, new vehicles, car insurance)
  5. Medical care (prescription drugs, med supplies, physician’s services)
  6. Recreation (tv, pets and pet products, sports equipment, admissions)
  7. Education and communication (college tuition, postage, phone services, computer and software accessories)
  8. Other goods and services (tobacco and smoking products, haircuts and other personal services, funeral expenses)
55
Q

Inflation rate

A

The % change in the price level from the previous period

56
Q

Calculation the inflation rate

A

Change in CPI/base CPI x 100

57
Q

Real wages vs. nominal wages

A

Real wages: wages adjusted for inflation

Nominal wages: the way you are compensated for work

58
Q

Cyclical unemployment

A

Unemployment that rises during economic downturns and falls when the economy improves. Getting laid off due to a recession is the classic case of this.

59
Q

Structural unemployment

A

A type of unemployment that occurs as a result of technological changes and changing patterns of demand, as well as geographical changes, and labor market rigidities

60
Q

Frictional unemployment

A

A type of unemployment caused by workers voluntarily changing jobs and by temporary layoffs; unemployed workers between jobs

61
Q

Cost of inflation

A

Tax, shoe-leather, confusion and uncertainty costs.

62
Q

Inflation and purchasing power

A

Reduces the purchasing power each dollar of income will buy less than before

63
Q

Redistributive effects of inflation

A

Fixed income groups will be hurt bc their real income suffers
savers will be hurt by the unanticipated inflation

Econ 211 (1 decks)

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