Module 2: Economic Measures and Indicators Flashcards
Expenditure Approach (GDP) Sum of Following: --(Flow of Product)
- Government purchases of goods and services
- Investment
- Personal consumption
- Net Exports
- —(GICE)
Income Approach (GDI) Sum of Following: --(Earnings and Costs)
- Income of proprietors
- Profits of Corps
- Interest
- Rental Income
- Adjustments
- Taxes
- Employee compensation
- Depreciation
- —( I PIRATED)
Net Domestic Product
GDP minus Depreciation
Gross National Product
Market value of final goods and services produced by residents of a country in a given time period
–Differs from GDP because GNP includes goods and services that are produced overseas by US firms and excludes goods and services that are produced domestically by foreign firms
Net National Product
GNP minus economic depreciation
Personal Income
Income received by households
Disposable Income
Personal Income less personal taxes. Amount of income households have available either to spend or save
Unemployment Rate
Ratio of number of unemployed people to the total labor force.
–Total labor force includes all non-institutionalized individuals 16 yrs or older who are either working or looking for work
Unemployment Rate Formula
(Number of unemployed / Total Labor Force) x 100
–Total Labor Force excludes those who choose to be unemployed
Frictional Unemployment
Normal unemployment stemming from ppl changing jobs (usually younger ppl)
Structural Unemployment
Unavailability, Lack of skills, change in technology
Seasonal Unemployment
Holidays (christmas)
Cyclical Unemployment
Results from declines in real GDP during periods of recession when economy fails to meet its potential
Natural Rate of Unemployment
Sum of frictional, structural, and seasonal unemployment or the employment rate that exists when the economy is at its potential output level
Inflation
Sustained increase in prices
–Inverse relationship with purchasing power
Deflation
Sustained decrease in prices
- -Deflation is seen as a much bigger problem than inflation
- -During deflation, firms are likely to have excess production capacity
Consumer Price Index
Measure of overall cost of a fixed basket of goods and services purchased by an average household
– (Current Cost of market basket / Base year cost of market basket) x 100
Inflation Rate
Percentage change in CPI from one period to the next
–(Change in CPI / CPI last period) x 100
Producer Price Index
Measures overall cost of a basket of goods and services typically purchased by firms
Real Interest Rate
Driven by supply and demand for loanable funds
–Nominal Interest Rate - Inflation Rate
Money Supply
All liquid assets available for transactions in the economy
M1
Coins, currency, checkable deposits, and traveler’s checks
M2
M1 + time certificates of deposits less than 100,000, money market deposit accounts at banks, mutual fund accounts, and savings accounts
M3
All items in M2 as well as time certificates of 100,000 or more
