formulas unit 2 Flashcards
GDP expenditure approach
C+I+G+Xn
GDP income approach
W+I+R+P
GDP deflator
(nominal GDP/real GDP) x 100
real GDP
(nominal GDP/GDP deflator) x 100
nominal GDP
(deflator x real GDP)/100
GDP growth rate
(current year GDP - Last year GDP/Last year GDP) x 100
CPI
(price of market basket/price of market basket in base year) x 100
real interest rate
nominal interest rate - inflation rate
unemployment rate
(number of unemployed/number in labor force) x 100
labor force participation rate
(labor force/population) x 100
contractionary fiscal policy
- for inflation
- govt. spending decreases, taxes increases
expansionary fiscal policy
- for recession
- govt. spending increases, taxes decreases
self correction for inflation
In the long run, wages and input prices are flexible and increase, which raises production costs, effectively shifting SRAS to the left.
self correction for recession
In the long run, wages and input prices are flexible and decreases, which lowers production costs, effectively shifting SRAS to the right.
nominal GDP is…
not adjusted for inflation
real GDP is…
adjusted for inflation
frictional unemployment
unemployed due to time workers spend in job search
structural unemployment
more people seeking jobs than there are available
workers skills are obsolete
cyclical unemployment
a lack of employment as a result of changes to an economy’s business cycle
occurs during recessions
spending multiplier
1/MPS
tax multiplier
spending mult. - 1
when actual unemployment rate < NRU
inflationary
when actual unemployment rate > NRU
recessionary
how to find the quantity in which fiscal policy should be acted on
change in output = spending mult. x
solve for x
