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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
Human capital
The knowledge and skills that workers acquire through education, training and experience
26
Natural resources per worker
The inputs into production of goods and services that are provided by nature, such as land, rivers, and mineral deposits
27
Labor force
The total number of workers, including both the employed and the unemployed
28
Unemployment
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
Not in the labor force
Full-time students, homemakers, retirees
30
Labor force
Number of employed + number of unemployed
31
Unemployment rate
Number of unemployed / labor force x 100
32
Natural rate of unemployment
The normal rate of unemployment around which the unemployment rate fluctuates
33
Cyclical unemployment
The deviation of unemployment from its natural rate
34
Discouraged workers
Individuals who would like to work but have given up looking for a job
35
Frictional unemployment
Unemployment that results because it takes time for workers to search for the jobs that best suit their tastes and skills
36
Structural unemployment
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
Efficiency wages
Above-equilibrium wages paid by firms to increase worker productivity
38
Technological knowledge
Society's understanding of the best ways to produce goods and services
39
The Production Function
Y=AF(L,K,H,N)
40
Diminishing returns
The property whereby the benefit from an extra unit of an input declines as the quantity of the input increases
41
Catch-up effect
The property whereby countries that start off poor tend to grow more rapidly than countries that start off rich
42
Investment from abroad
- 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
Education
- 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
Health and nutrition
- human capital: expenditures that lead to a healthier population. - healthier workers are more productive
45
Property rights and political stability
-another way policy makers can foster economic growth is by protecting property rights and promoting political stability
46
Free trade
- a type of technology
47
Research and development
-living standards are higher today than they were a century ago because of technological knowledge has advanced -
48
Population and growth
- a large population means more workers to produce goods and services - higher population = more people to consume those goods and services
49
Actual GDP
- 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
Potential GDP
-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
Cost of unemployment
The output lost due to the fact the economy is not running at full employment
52
CPI
Is the measure of average prices paid by consumers for a fixed basket of goods and services
53
CPI measures the changes of the
Prices paid by consumers for a fixed market basket of consumer goods and services
54
CPI categories (8)
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
Inflation rate
The % change in the price level from the previous period
56
Calculation the inflation rate
Change in CPI/base CPI x 100
57
Real wages vs. nominal wages
Real wages: wages adjusted for inflation | Nominal wages: the way you are compensated for work
58
Cyclical unemployment
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
Structural unemployment
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
Frictional unemployment
A type of unemployment caused by workers voluntarily changing jobs and by temporary layoffs; unemployed workers between jobs
61
Cost of inflation
Tax, shoe-leather, confusion and uncertainty costs.
62
Inflation and purchasing power
Reduces the purchasing power each dollar of income will buy less than before
63
Redistributive effects of inflation
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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