Unit 2 Flashcards
What are the Macroeconomic goals for each country?
Promote Economic Growth- Limit Unemployment- Keep Prices Stable
Define GDP
Dollar value of all final goods and services produced within a country in one year.
What are the three ways of measuring GDP?
Expenditure-Income-Value Added Approach EIV
Define Final Goods
GDP only counts new goods and services.
Define Within The Country
GDP measures production within the country’s borders.
Define the Expenditure Approach
Add up all the spending on final goods and services produced in a given year.
What is the equation for the Expenditure Approach?
C+I+G+Xn
What does C represent in the Expenditure Approach Equation?
Consumer Spending
Define Consumer Spending
(70% of GDP) Purchases of final goods and services by individuals.
What does I represent in the Expenditure Approach Equation?
Business Investment
Define Business Investment
(16% of GDP) Businesses spending on tools and equipment.
What does G represent in the Expenditure Approach Equation?
Government Spending
Define Government Spending
(17% of GDP)
What does Xn represent in the Expenditure Approach Equation?
Exports-Imports
Define the Income Approach
Add up all the income earned from selling all final goods and services produced in a year.
What are the excluded items from GDP?
Illegal Activities
Barter-exchange (goods or services) for other goods or services without using money.
Household Services- Wife
Used Goods (Double Counting)
Intermediate Goods (Double Counting)-Ex. Tires on a new Truck
Transfer Payments-Public/Private Transfer Payment-Ex. Financial Aid
Purely Financial Transactions- Stocks, Bonds, and Savings.
When Ig>D, that is when companies are _____; when Ig
Content-Recession
C+Ig is known as the _____ sector.
Private
What is the equation for the Income Approach?
(National Income/Income Approach) NI= W+I+R+P+TIP
W=
W= Wages (Wages, Salaries, and Benefits)
I=
I= Interest Income (Assets that are earning us income)
R=
R= Rent (Income private people will earn as they allow others to use their physical capital)
P=
P= Profits (Corporate, Partnership, and Sole Proprietor Profits)
TIP=
TIP= Taxes on Imports and Production (Tariffs and Excise Taxes)
Define the Value-Added Approach
Add up the dollar value added at each stage of the production process.
What are the conditions of being counted in the labor force?
At least 16 years old- Able and Willing to Work- Not institutionalized-Not in School, Military, or retired. 16AIS
Define Unemployment
Workers that are actively looking for a job but aren’t working.
Define Labor Force Participation Rate
The percent of people employed and unemployed divided by the number of the working-age population.
Define Discouraged Workers
Some people are no longer looking for a job because they have given up.
Define Underemployed Workers
A part-time worker that wants more hours but can’t get them is still considered employed.
What are the types of unemployment?
Frictional-Structural-Cyclical FSC
Define Frictional Unemployment
Temporary unemployment or being in between jobs. Individuals are qualified workers w/ transferable skills.
Define Structural Unemployment
Changes in the labor force make some skills obsolete. These workers DO NOT have transferable skills and these jobs will never come back. Workers must learn a new skill to get a job.
Define Cyclical Unemployment
Unemployment caused by a recession. As demand for goods and services falls, demand for labor falls and workers are laid off.
Define the Natural Rate of Unemployment
Frictional plus structural unemployment. The amount of unemployment that exists when the economy is healthy and growing.
Define Full Employment Output
The real GDP created when there is no cyclical unemployment.
Define CPI
The most commonly used measurement of inflation.
Mkt Basket of Particular Year/ Mkt Basket of Base Year x100
Define Inflation
Increase in general prices over time.
Define Deflation
Decrease in general prices or a negative inflation rate.
Define Disinflation
Prices increasing at slower rates.
Define GDP Deflator
Measures the prices of all goods produced.
Nominal GDP/Real GDP x 100
What are some problems with the CPI?
Substitution Bias-New Products-Product Quality SNQ
New Products- The CPI market basket may not include the newest consumer products.
Product Quality- The CPI ignores both improvements and decline in product quality.
Define Substitution Bias
As prices increase for the fixed market basket, consumers buy less of these products and more substitutes that may not be part of the market basket.
What group of people are helped by inflation?
Borrowers (People who borrow money)- A business where the price of the product increases faster than the price of resources.
What group of people are hurt by inflation?
Lenders (people who lend money at fixed interest rates)- People with fixed incomes-Savers.
Define Nominal Wage
Wage measured by dollars rather than purchasing power.
Define Real Wage
Wage adjusted for inflation.
Define Nominal GDP
GDP measured in current prices. It does not account for inflation from year to year.
Define Real GDP
GDP expressed in constant, or unchanging, dollars. Real GDP adjusts for inflation.
What are the phases of the business cycle?
Peak-Recession-Trough-Expansion
Define the Rule of 70
70% GDP growth rate
What is the Labor Force consisted of?
Employed+Unemployed
What is the formula of Unemployment Rate?
(Unemployed/Labor Force)x100
Define Okun’s Law
Every 1% of Unemployment is greater than the natural rate of unemployment and you will have a 2% GDP gap.
There are about _____ items in the CPI.
400
What are the types of Inflation?
Demand Pull-Cost Push- Monetary Equation of Exchange DCM
Define Demand Pull Inflation
Too much money chasing too few goods.
Define Cost Push Inflation
Blamed on the increasing price of raw material, capital, and labor.
Define the Monetary Equation of Exchange
MV=PQ M=Money Supply V= Velocity of Money
What is the equation for Nominal GDP?
Nominal GDP= Real GDP+ Expected Inflation
What is the equation for Nominal Interest?
Nominal I= Real I+ Expected Inflation
What is the equation for GDP?
GDP=NI+NFFI+DEPR-SD
What is the equation for NDP?
NDP=GDP-DPR
What is the equation for NI?
NI=NDP-NFFI+SD
What is the equation for PI
PI=NI-TIP-SSC-CIT-UCP+TP
What is the equation for DI?
DI=PI-PIT
What is the equation for DI?
DI=C+S
What is the equation for UCP?
UCP=Income-Expenses-CIT-Dividends