Exam 2 Flashcards
GDP Definition
The market value of all final goods and services produced in a nation within a specific period of time
Functions as a “barometer” for the economy
Sum of output from all economic activity
Output becomes income
Output = GDP = Income
GDP formula
C + I + G + NX
Nominal GDP
GDP measured current prices
Real GDP
GDP measure with prices held constant over time
Three things not included in GDP
Transfer payments such as social security or welfare
When households spend income
Frictional unemployment
Unemployment caused by time delays in matching available jobs and workers
People don’t instantly take a new job, and they might not want to take the first available job
Firms don’t always hire the first applicant
Structural unemployment
Your skill set is no longer needed
Unemployment caused by changes in the industrial makeup (structure) of the economy
Joseph Schumpeter: “creative destruction”
New industries are created, and old ones are destroyed
Cyclical unemployment
Caused by economic downturns
The “worst” kind of unemployment
Occurs for an unknown length of time
2008: 18 months, 10% unemployed
Natural rate of unemployment (u*)
Typical rate of unemployment in a healthy economy
Actual employment rate denoted by (u)
(5%)
Discouraged workers
People who want a job but get discouraged and give up looking for work
Are not included in the labor force and not considered unemployed
Underemployed workers
Part-time workers who wantfull-time jobs
Workers who are veryoverqualified at their job
Considered employed
What is the CPI
A measure of the price level based on the consumption pattern of a typical consumer
Goal: include everything purchased by a typical consumer to get a measure of the cost of living
CPI equation
Basket price/basket price in base year
What is the GDP deflator
A measure of the price level that includes prices of final goods and services in GDP
Used to “deflate” out inflation from nominal GDP so we can find Real GDP
GDP deflator equation
NominalGDP/Real GDP
