Macroeconomics Exam 2 Flashcards
GDP
sum of final goods produced during some period
other names for GDP
aggregate output, income, Y
C + I + G + NX =
Y (GDP)
C in GDP equation
new consumption
I in GDP equation
private physical investment
G in GDP equation
government purchases
NX in GDP equation
net exports
the ability of an individual, a firm, or a country to produce a good or service at the lowest opportunity cost
comparative advantage
the ability of an individual, a firm, or a country to produce more of a good or service than competitors, using the same amount of resources
absolute advantage
the ratio at which a country can trade its exports for imports from other countries
terms of trade
reductions in a firm’s costs that result from an increase in the size of an industry
external economies
redistribution of surplus and causes deadweight loss(es)
effects of tariffs
the percentage of the labor force that’s unemployed
unemployment rate
people who are available for work but who are not actively looking for a job because they believe no jobs are available for them *NOT counted as unemployed
discouraged workers
short-term unemployment that arises from the process of matching workers with jobs
frictional unemployment
arises from a persistent mismatch between the job skills/attributes of workers + the requirements of jobs
structural unemployment
type of unemployment caused by a business cycle recession
cyclical unemployment
the normal rate of unemployment, consisting of structural and frictional unemployment
natural rate of unemployment
a higher-than-market wage that a firm pays to increase workers’ productivity
efficiency wage
equal to the percentage change in the price level from one year to the next
inflation rate
measure of the average change over time in the prices a typical urban family of 4 pays for the goods/services they purchase
consumer price index
an average of prices received by producers of goods/services at all stages of production
producer price index
the producer price index is more volatile than
CPI and PCE. It’s thanks to competition & more weight on physical goods
the stated interest rate on a loan
nominal interest rate
the nominal interest rate minus the inflation rate
real interest rate
decline in the price level
deflation
When the price level increases (inflation), the real interest rate is ______ than the nominal interest rate
less than < (because you’re subtracting a positive value from the nominal rate)
When the price level stays the same, the real interest rate ______
= nominal interest rate
When the price level decreases (deflation), the real interest rate is _____ than the nominal interest rate
more than > (because you’re subtracting a negative value from the nominal rate)
it can be expressed as real interest rate ≈ nominal interest rate − inflation rate
the fisher equation
( 1 + i ) = ( 1 + r ) x ( 1 + π )
the fisher equation written in mathematical terms
food & beverages, housing, apparel, transportation, medical care, recreation, education & communication
consumer price index (CPI) components
refers to alternating periods of economic expansion and economic recession
the business cycle
the process by which rising productivity increases the standard of living in the typical person
long-run economic growth
Capital refers to…
manufactured goods that are used to produce other goods and services
the level of GDP attained when all firms are producing at capacity
potential GDP
refers to a decline in private expenditure as a result of an increase in government purchases
crowding out
characteristics of a growth-enabling financial system
1) sound money 2) a central bank/other monetary authority(ies) 3) private baking system 4) securities markets 5) risk sharing and spreading institutions and markets
home plate of the growth diamond
government (protects life, liberty, property, peace; EX taxes, tolerable admin. of justice
1st base of the growth diamond
financial system (number of banks, securities markets, insurers, etc.)
The ____ _______ is all about the incentives to work harder, longer, faster
growth diamond
2nd base of the growth diamond
entrepreneurship (new entries, job market churn)
3rd base of the growth diamond
management (ability to run large organizations especially joint-stock corporations to achieve economies of scale)
