Midterm 1 Flashcards
3 main indicators of macro
real GDP
unemployment
inflation
3 approaches of national income accounting
product: dollar amount of output produced
expenditure: dollar amount spent by purchasers
income: dollar incomes earned by production
fundamental identity of national income accounting
total production = total expenditure = total income
production approach: definition of GDP
the current market value of all final goods and services newly-produced in the domestic economy during a specified period of time
things to remember about production approach
most non-market goods and services not included
value-added as net profit on a product
capital goods treated as final goods since they are not used up (inventories also as final goods)
expenditure approach: definition of GDP
the total spending on all final goods and services produced in the domestic economy during a specified period of time
consumption approach: definition of GDP
the total spending by domestic households on final goods and services
categories: consumption, investment, government purchases of goods and services, net exports
3 components of consumption
consumer durable goods (lifetime >= 3 years)
consumer nondurable goods (lifetime <=3 years)
services
income approach: definition of GDP
the total income earned by individuals and businesses in the economy
categories: compensation of employees, other income, corporate profits, depreciation, net factor income
5 different income measures in the income approach
national income
GDP
GNP
private disposable income
net government income
national income
compensation of employees + other income + corporate profits
GNP
national income + depreciation
GDP
GNP + net factor payments
GNP - net factor income
private disposable income
GDP + net factor income + transfer payments from government + interest payments on government debt - taxes
net government income
taxes - transfer payments - interest payments on government debt
nominal vs. real values
nominal variables measured in current dollar terms
real variables adjusted for changes in price
nominal GDP = price * real GDP
price index
the average level of prices for a specified set of goods and services relative to the prices in a specified base year
3 major price indices
the GDP deflator
the PCE deflator
CPI
3 major price indices
the GDP deflator
the PCE deflator
CPI
unemployment rate
percentage of civilian labour force willing and able to look for work, actively looking for work and are not currently employed
unemployed/labour force
participation rate
labour force/population
employment ratio
employed/population
labour force
employed + unemployed
interest rate
measures the cost of borrowing and the return to saving/lending
why do interest rates differ?
maturity: difference in the length of the loan
credit risk
liquidity: how easy it is to turn the bonds/loas into cash
Fisher equation
relationship between expected inflation, real interest rate and nominal interest rate
supply/productivity shocks
occur if there is a change in the amount of output that can be produced with a given amount of capital and labour
why do supply shocks occur?
technology shocks
natural environmental shocks
energy price shocks
significant financial shocks
solow-swan’s focus
how the savings rate and labour force growth rate determine capital accumulation, which in turn affects economic growth
assumptions of solow-swan
Cobb-Douglas production function
one commodity
national income identity Y=C+I
constant fraction of output saved (s)
capital depreciates at a constant rate
capital accumulation equation solutions
general solution
steady-state solution (capital to efficient labour ratio not changing as a function of time)
steady-state and per-capita income
gY/L = gE
capital and labour are characterised by what properties that technology is not?
rivalry - only one person can use the factor at any given time
excludability - the owner of the factor of production can prevent others from using the factor
key policy message of the romer model
rationale for government support of R&D to promote faster growth in output/worker
why does the private sector spend too little rather than too much on developing new technologies?
technology as largely non-excludable
if you develop an idea, competitors focus on that
government policies to promote productivity
building infrastructure
increasing human capital
encouraging R&D
property rights
provide incentives/disincentives for undertaking investment and accumulation of capital
business cycles
short-run fluctuations in aggregate economic activity around its long-run growth path
4 parts of the business cycle
peak: maximum level of aggregate economic activity
trough: lowest level of aggregate economic activity
contraction/recession: period of time when aggregate economic activity is shrinking
recovery/expansion: period of time when aggregate economic activity is growing
direction of co-movement
procylical
countercylical
acylical
timing of co-movement
leading
lagging
coincident
not designated
volatility of co-movement
higher
similar
lower
