Module 2 Flashcards
Depression
A deep and prolonged downturn
Rescission
Short pweriods where the economy is falling (from a peak down to a trough)
Expansion
When the economy is in an upturn, (the distance from a trough to a peak)
Employment
Number of people with a paid job
Unemployment
Number of people without a job
Labor force
The sum of the employed and unemployed
Output and unemployment are ____________ related
Inversely
Aggregate output
The economies total production of stuff for a given time.
Inflation
A rise in the overall price of everything
Deflation
A decrease in the price of everything
Disinflation
When the rate of inflation is getting smaller, (note, still inflating)
Full employment on graph
The strait line
Peak (graph)
The maximums
Trough (graph)
The minimums
3 economic goals
- Promote economic growth
- Limit unemployment
- Keep prices stable
National income and product accounts
Keeps tract of flows of money among different people
Stocks
A share of the ownership of a company
Bonds
A loan in the form of an IOU
Final goods and services
Goods and services sold to final user
Intermediate goods and services
Bought by firms as inputs for the production of final goods
GDP equation
GDP= C+I+G+X-IM
C
Consumer spending
I
Sales of investment goods
G
Government purchases
X
Exports
IM
Imports
Is consumer spending included in GDP
Yes
Is investment spending counted in GDP
Yes
Is government purchases included in GDP
Yes
Are net exports included in GDP
Yes
Are intermediate goods in GDP
No
Financial assets and transfer payments in GDP
No
Are inputs in production included in GDP
No
Are foreign goods included in GDP
No
Are used goods in GDP
No
GDP per capita
GDP divided by population
Nominal GDP
Total value of all goods and services produced in an economy in a given year, with current prices
Real GDP
Total value of all goods and services produced in an economy in a given year, with base year prices
Four components of income
- labor income
- Rental income
- Interest income
- Profit
Employed
People currently holding a job in the economy
Unemployed
People with no work but looking for it
Labor force
Sum of employed and unemployed
Low unemployment means
It’s easy to find jobs
High unemployment means
It’s hard to find jobs
Discouraged workers
Not working, but given up on job search due to market
Marginally unemployed workers
Those who want a job, but looked in past and gave up now
Underemployed workers
Overqualified workers or workers who want more hours
Unemployment ________ during recessions
Rising
Unemployment ________ during expansions
Falls
Frictional unemployment
Unemployment due to time in apt he job search
Structural unemployment
Unemployment due to a lack of necessary skills
Minimum wage
Government mandated price floor on wages
Labor unions
Work together to gain higher minimum wages
Efficiency wages
Wages employers set above equilibrium as an incentive for better performance
Natural rate of unemployment
Rate that arises from effects of frictional plus structural unemployment
Cyclical unemployment
When there are not enough jobs for those who want them.
Actual rate of unemployment
Natural + cyclical rate of unemployment
Real wage
Wage rate divided by price level to adjust affects of inflation
Real income
Income divided by price level to adjust for income
Inflation rate
Percentage increase in price from year to year.
Inflation rate formula
(Year 2-year 1)/year 1
Shoe leather costs
Increased costs of transactions due to inflation
Menu costs
The cost of changing prices listed on a menu
Unit of account costs
Arises because money is a less reliable source of payment
Unexpected inflation
Borrowers benefit lenders lose
Unexpected deflation
Borrowers lose, lenders benefit
Nominal interest rate
Rate actually paid for a loan
Real interest rate,
Nominal interest rate minus the rate of inflation
If deadpool has a nominal interest rate of 6% but inflation rate is 3% what is his real interest rate
3%
Savers _______ with inflation
Lose
Spenders _____ with inflation
Win
Calculate nominal GDP
Cost of good times amount of it
Calculate real GDP
Cost of good (of a base year) times the quantity of the good in a current year
CPI calculations.
Take the nominal GDP of a current year and divide it by the previous. Multiply this by 100:)
Calculating inflation rate based on nominal GDP
Year 2- year 1 over year 1 x 100
Aggregate price level
A measure of the overall price of goods in an economy
Market basket
A hypothetical set of consumer goods and purchases
Price of a market basket is gotten by
Adding… Yup… Just adding
Price index
Cost of market basket in current year divided by cost of a market basket in base year
CPI
Consumer price index: measures the cost of s market basket in a typical urban family
Why inflation isn’t always accurate, and what it makes it so that spending x amount of money is nesisary To be just as happy
- People’s tastes change (choose different goods)
- We buy improved versions(get more for more)
- Innovation makes inflation an overstatement
PPI
Measures the price of goods and services purchased by a producer
Responds to inflation faster
GDP deflator
Nominal /real x100
3 causes of inflation
- Gov prints too much money
- Demand pull
- cost push inflation
Demand pull
Too much money in market. Makes goods cost more
Cost push inflation
Cost of resource drives prices
Quantity of money theory
MV=PY
M
Money
V
Velocity of money
P
Price level
Y
Quantity of output
