Macroeconomics - Unit 1 Flashcards
GDP Equation Expenditures Approach
GDP = C + I + G + ( X-M )
What is GDP?
The dollar value of all FINAL goods and services produced WITHIN a country in one year
What DOESN’T count towards GDP?
Intermediate Goods - Things used to produce the final good
Used Goods - Things that were produced in previous years
Financial Transactions - Nothing new is produced - so buying stocks and bonds from someone
Government transfer payments
What are the 3 ways to measure GDP?
Expenditures Approach
Income Approach
Value added Approach
What DOES count towards GDP?
Consumer spending, business investment, government spending, exports minus imports
What are the limitations towards GDP
P - Population
I - Inequality
E - Environment
S - Shadow Economy
Unemployment rate equation
in labor force
number of unemployed
————————————— x 100
number in labor force
Do discouraged workers count as unemployed?
NO! if you stop looking for a job or stop wanting a job you’re not considered unemployed because you’re not part of the labor force
What is Labor Force?
The people who are actively looking for a job or who have a job, over 16, not in jail and not in military
What are the three types of unemployment and what two always exist?
- Frictional Unemployment
- Structural Unemployment
- Cyclical Unemployment
What is the NRU (Natural Rate of Unemployment)
The amount of unemployment even when the economy is doing great. Achieved when there is only frictional and structural, no cyclical.
What is Frictional Unemployment?
Temporary unemployment, between jobs
What is Structural Unemployment?
Long term unemployment because workers don’t have the right skills
What is Cyclical Unemployment?
The result of an economic downturn or recession. Workers are let go because of less demand
What is Inflation Rate?
The percent change in prices from year to year
What are Price Indices?
Index numbers assigned to each year showing how price has changed relative to a specific base year
What is CPI (Consumer Price Index)?
- Most common measurement of inflation
- The base year is given an index of 100
- Each year is given an index # as well
What does P stand for in PIES?
Population, other countries have different populations
What does I stand for in PIES?
Inequality, even if two countries have an identical GDP per capita, you cannot assume all households in the countries have the same standard of living
What does E stand for in PIES?
Environment, GDP has no way of calculating the benefits of clean air/clean water
What does S stand for in PIES?
Shadow Economy, the informal sector where people work and earn money but under the radar
CPI Equation
Price of Market Basket / Price of Market Basket in base year x 100
Percent Change in Prices Equation
Year 2 - Year 1
—————————- x 100
Year 1
What is the Expenditures Approach?
Looks at all of the purchases made on goods and services produced within the United States in a given year, focuses on purchases
What is the Income Approach?
The income earned from all purchases, every single person spending is somebody elses income.
What is the Value Added Approach?
Adding value to a product being sold and eventually being sold again as a final product
What is Nominal GDP?
The GDP in todays dollars not adjusted for inflation
What is Real GDP?
The GDP adjusted for inflation, analyze money from a base year
GDP Equation Income Approach
Labor + Rental + Interest + Profit
Real GDP Equation
Nominal / GDP deflator
