Measuring Economic Activity Flashcards
What is growth theory?
It analyses the long-term component, the trend (Potential GDP)
What is business cycle theory?
It analyses the short-term component, the business cycle
What is output gap?
The difference between potential (blue line) and actual GDP
Unemployment Rate
The percentage of the workforce who would like to have a job but can’t find one.
Frictional Unemployment
People moving between jobs, careers, locations
Structural Unemployment
Long-term unemployment. Mismatch between employees skills and the needed skills the employers demand
Cyclical Unemployment
Unemployment as a cause of recession cycles or similar
Economic Policy
Designed to hopefully improve the economic performance.
Stabilization Policy
Government interventions that are used to smooth out short-run fluctuations (reduce output gap)
Fiscal & Monetary policies
Fiscal Policy
Taxation and government spending
Monetary Policy
money supply and interest rates, central bank
Structural Policy
- Promote long-term growth by changing the core structure of the economy
Commodity Market
- Price Level (CPI)
- Production (GDP)
Labour Market
- Wages
- Employment/Unemployment
Capital Market (and money market)
- Saving, Investment, Interest Rate
- Wealth
Foreign Exchange Market
- Exchange Rate
- Net Exports
Econometrics
Collection of statistical methods to analyse economic data and economic relationship.
Key issue: Correlation vs Causation
Three Central Indicators of Economic Activity
- GDP
- Inflation
- Unemployment
Market Value
The price of the good or service that the consumer pays
Three ways to measure GDP
- Production Method (Market value & value added)
- Expenditure Method (aggregation technique, sum of expenditures on domestically produced final goods and services)
- Income Method (sum of all income)
GDP Identity
GDP = Y = C + I + G + M -IM
Nominal GDP
Measures quantities produced each year valued at current prices
Real GDP
Measures quantities produced each year valued at base year prices
(Nominal GDP / GDP Deflator) x 100
Real Growth Rate
(Real GDP1 - Real GDP 2) / Real GDP2
The GDP Deflator
Average price level of all goods and services that is part of GDP relative to a base year.
(Nominal GDP / Real GDP) x 100
