Midterm 1 Flashcards
Gross domestic product (GDP)
The sum of the market value of all final goods and services produced within a country in a given period of time
Gross national product (GNP)
The sum of all final goods and services produced by the citizens of a country within a given period of time
Real GDP
Calculated with goods and services held at constant prices
Nominal GDP
Calculated with goods and services at current prices
GDP deflator
Measures change in price
Nominal GDP/real GDP x 100
Consumer price index (CPI)
Basket price in desired year
————————————— x 100
Basket price in base year
Purchasing power parity (PPP)
Purchase power should theoretically be the same everywhere when stated in common currency
PPP adjusted GDP
Nominal dollars
————————————
1 - price level adjustment
Cost of living adjustment
Real year B =
Nominal year A x
CPI year B
——————
CPI year A
Real value year B
= real value year A x
CPI year A
—————
CPI year B
Real GDP per capital growth rate =
Nominal GDP growth rate - inflation rate - population growth rate
Years until income doubles
Rule of 70
70 ——————— Real growth rate
GDP year A =
GDP year B x
(1 + growth rate)^A-B
Unemployment rate =
of unemployed
———————— x 100
Labour force
Frictional unemployment
Unemployment caused by workers who are changing their location, job, or career.
Structural unemployment
Unemployment caused by a mismatch between the skills workers can offer and the skills that are in demand
Classical / real-wage unemployment
The effect of wages remaining persistently above the market clearing level
Short run demand side shock
Price and output move the same direction
Long run demand side shock
Output stays the same, price increases or decreases
Short run and long run supply shock
Output and price move in opposite directions
Marginal propensity to consume (MPC)
The amount by which consumption increases when after tax income increases by 1$
Government spending multiplier definition
The amount by which GDP increase when government spending dung increases by 1$
Government spending multiplier formula =
1
————
1 - MPC
Taxation multiplier definition
The amount GDP decreases when taxes increase by 1$
Taxation multiplier formula =
-MPC
————
1 - MPC
Transfer payments
Payments from government accounts to individuals for programs that do not involve the purchase of goods or services
I.e. welfare
Crowding out effect
Theory that rising public spending drives down private spending
Due to the increased interest rates from the government borrowing to spend
