GDP Test Flashcards
GDP
All goods and services produced in a country in 1 year (QUANTITY) [Final goods produced within the US]
GDP Does not include
Used Products, Transfer payments, stocks/bonds, at home services. intermediate/ foreign services
Ways to Measure GDP
Value of PRODUCTION of final goods and services, Value of spending on final goods and services, Factor Income
GDP Equation
C (Consumer Spending) + I (Investment Spending) + G (Government Spending) + Xn (Exports - Imports)
GDP Faults
It does not measure prosperity or standard of living
Umemployed
People not employed but ACTIVELY looking for work
Labor Force
Unemployed + Employed
Labor Force Participation Rate
(Labor Force/ Population Aged) * 100
Unemployment Rate
(# Unemployed/ Labor Force) * 100
Discouraged Workers
Not employed and not looking
U3
Official Unemployment Rate
U6
Unemployment rate + Includes discouraged, marginally attached workers, and half time workers
Frictional Unemployment
New opportunities/ Jobs
Structural
More people looking then jobs OR obsolete workers/ jobs gone
Cyclical
During recessions, layoffs
Natural Rate of Unemployment
Frictional + Structural
Actual Rate of Unemployment
(Frictional + Structural (Which is Natural)) + Cyclical
CPI
Changes in Price
Market Basket
(Price * Quantity) Consumer Expenditures
CPI Equation
(Market Basket Current Year/ Market Basket Base year) * 100
Rate of Change
((New-old)/ Old) * 100
Nominal
Not adjusted for inflation
Real
Adjusted for inflation
Real Value
Nominal Value/ (Price Index/100)
CPI of different items
Changes at different rates
Substitution Bias
As prices rise, consumers switch goods but it appears as though consumers have lost purchasing power
Things CPI doesn’t account for
Substitution Bias, Unmeasured quality changes, Prices rising and falling drastically
Inflation Rising causes
purchasing power to decrease
Nominal GDP =
(Price Level/Index * Real GDP (Y)) OR (Pcy *Qcy) OR (Real GDP *(Aggregate Price Level/100))
Nominal GDP measures
How much is spent on output in a given period and the value of aggregate output
Real GDP
Measure of how much the value of aggregate output in constant dollars
Real GDP =
(Pby * Qcy) OR ((Nominal GDP/ Aggregate Price Level) *100) Real and Nominal GDP are equal to each other at the base
GDP Deflator is
Changes in prices for all goods and services which show us the aggregate price level
GDP Deflator (Implicit price deflator) =
((Nominal GDP/ Real GDP) * 100)
Inflation Rate =
((GDP Deflator cy - GDP Deflator by)/GDP Deflator by ) * 100 OR CPI subsitute
CPI Deflator
Purchasing Power changing over time ( Changes in Price, Quantity is constant) [Tracking just C]
GDP Deflator
Output has changed over time (Price is constant, Quantity is changing) [ Tracking C, I, G and Xn]
Output (Increasing on graph)
When output is increasing employment is rising
Recession (going down on graph)
Output is decreasing and employment is falling
Line diagonal across the graph
The potential output
Actual Output = Potential Output
Unemployment Rate = Natural Rate of Unemployment
Actual Output < Potential Output
UR > NRU
Expenditures
Purchases
Expenditure Side of GDP =
Income Side of GDP
Income
Who received incomes generated by products.
Output Gap
Diff between actual and potential GDP
