Final Exam Flashcards
Three ways to calculate GDP
- Total spending (AE)
- Total income
- Value added (output)
Nominal GDP
measured in today’s dollars
Real GDP
measured in a constant dollar
GDP vs GNP
GDP is only in origin country
GNP is in any country
Technology
new and efficient ways of combining inputs to produce more outputs
Best form of technology
division of labour
Is population growth good for economic growth?
No. This lowers the GDP/person
Four factors that impact GDP
- Investment in physical capital
- Population growth rates
- Investment in human capital
- Technology growth
efficiency wages
really high wages to entice workers not to leave
structural unemployment
unemployment that results when wages are too high and supply doesn’t equal demand
frictional unemployment
unemployment due to people moving from one job to another
cyclical unemployment
due to recession
working age population
people 15 years and older
employed population
working age people who work atleast 1 hour a week for some kind of pay: includes parental leave
unemployed population
working-age people without jobs who are searching and could immediately accept a job
labour force
employed + unemployed
labour force participation rate
(labour force / working age population) x 100%
unemployment rate
(unemployed/labour force) x 100%
shoe leather costs
increased cost of transactions caused by inflation (i.e the pain of getting more cash)
menu costs
refer to the real costs of changing listed prices due to inflation
real interest rate
nominal rate - inflation
indexing
a way to correct the effect of inflation
whats the relationship between saving and investment
savings = investment
(this is for unplanned investment) and think that spending is inversely
AE > output
negative unplanned investment
AE < output
positive unplanned investment
if hours are ever reduced in a lockdown/shutdown
effective unemployment increases
compounding
present value x (1 + r)^t
discounting
future value x (1/(1+r)^t)
present value of sum of payments
(next years revenue)/(r+d)
supply in market for loanable funds
savers
demand in market for loanable funds
investors
current account balance
difference between the income receive from and paid abroad
financial account balance
difference between financial inflows and outflows
read this
current account defecit means canadians spend more than they make
the financial account covers this gap
balance of payments
current account = financial account
keeps everything in check
nominal exchange rate
foreign / domestic
floating exchange rate regime
exchange rate fluctuates in response to market forces
fixed regime
The exchange rate is set by the government and never (or rarely) changes.
Managed Exchange Rate Regime
The government buys and sells currency to reduce volatility and/or to keep the currency cheap.
devaluation
a reduction in the value of a currency (giving in as a fixed regime)
revaluation
an increase in the value of a currency (giving in as a fixed regime).
purchasing power parity
the nominal exchange rate at which a given basket of goods would cost the same in each country
Okuns rule of thumb
for every percentage point that actual output falls below potential output, the unemployment rate is around 1/3% higher
GDP multiplier
ΔGDP = Δspending x multiplier
GDP multiplier (for transfers/tax)
ΔGDP = Δspending x multiplier x MPC
the yield curve illustrates
the relationship between time to maturity of an asset and the interest rate of that asset
is there more or less uncertainty overtime for bonds?
less
difference in yield rate is due largely to?
term risk
supply shocks
sudden changes to output (input prices, intermediates, etc) any rise in production cost
three causes of inflation
inflation expectations
demand-pull inflation
cost-push inflation
how does inflation affect unemployment rate
structural unemployment - supply shock
anything with oG = cyclical
multiplier
1 / (1-MPC)
specie money
gold/silver coins
fiat money
bills from bank
commodity money
random items
deposit rate
rate bank pays to store peoples money
bank rate
rate bank charges to loan money
what does gdp not include
- value of intermediate goods
- value of stored inventories
- value of things from other years
- goods that are not final
- anything produced foreignly
