Unit 2 Flashcards
Gross Domestic Product (GDP)
dollar value of all final goods and services produced within a country in one year.
–> measures eco growth on PPC within country producing borders(land, labor, capital)
dollar value (market price)
sale price (found at equilibrium)
GDP calculation
sale price - production price = profit
expenditure model
c + i + g + xn = Y(GDP)
intermediate goods
goods still being used in the production of another good
–> not counted in GDP
final good
goods available for purchase for consumers
–> counted in GDP
consumer spending
what consumer buy
investment (business) spending
all new construction
change in capital
change in inventory
government spending
must make an exchange of money for a good or service
net exports
exports - imports
what is not included in GDP
- DIY
- financial assets transactions (stocks + bonds)
- transfer payments (subsidies)
- used goods
% change in GDP
(year 2 - year 1)/year 1 *100
GDP per capita (per person)
identifies average on how many products each person makes
Why GDP is higher in some countries
- human capital (edu)
- capital stock (tech)
- rule of law (political stability)
- natural resources reservoir
ways to calculate GDP
- expenditure approach : add up all spending on final G + S produced in given year
- income approach : add up all income earned from selling final G + S produced in given year
- value add approach : add up dollar valued added at each stage of production process
3 component consumer spending
- durable goods (washing machine, long term tech)
- non durable goods (food, clothes)
- services (dental work, tutoring, repairs)
to be employed :
16+
civilian (not military)
non institutionalized (jail)
actively seeking employment
to be part of labor force :
unemployed / employed
labor force = unemployed + employed
employment figure
employment rate
unemployed/labor force
unemployed/employed
underemployed
people go from full time to part time not by choice; pay cut. unemployed so take what you get
discouraged workers
unemployed originally but then stop looking for work
frictional unemployment
short term (move/ graduated and looking for job; no cause)
structural
long term unemployment
-> no skills to transfer to another job
Cyclical
Unemployment when nation is going through economic hardships
natural rate of unemployment
healthy eco system
-> US : 4 < x < 6% unemployment rate
inflation
rising general level of P + reduces purchasing power of money
–> decreases investment and GDP
deflation
decreasing in general prices; a negative inflation rate
disinflation
inflation that occurs at a slower rate
inflation rate
% change in P from year to year
price indices
index numbers assigned to each year that show how P has changed relative to a specific base year.
consumer price index
(price of market basket) / (price of market basket in base year)
substitution bias
as P increase or fixed market basket, consumers buy less if these products and more substitutes that may not be part of market basket. (CPI may be higher than what consumers are really paying).
new products
CPI market basket may not include the newest consumer products. (CPI measures prices not the increase in choices
products Q
CPI ignores both improvements and decline in products Q
problems with CPI
- substitution bias
- new products
- product Q
lenders
people who lend money at fixed interest rates
(hurt by inflation)
borrowers
people who borrow money
people who are hurt by inflation
- lenders
- people with fixed incomes
- savers
people who are helped by inflation
- borrowers
- bus where P of products increases faster than P of resources
people who are helped by inflation
- borrowers
- bus where P of products increases faster than P of resources
nominal wage
wage measured by money rather than purchasing power
real wage
wage adjusted for inflation
menu costs
costs money to change listed prices
shoe leather costs
costs of transaction increasing
–> people reduce real money holding, so they must spend time and effort making additional trips to bank
unit of account cosrs
money doesnt reliably measure the value of G + S
–> leads to less efficient use of resources bc of uncertainty caused by changes in currency values
real
adjusts for GDP
inflation
rising general level of prices
norminal GDP
GDP measured in current prices; doesnt account for inflation from year to year
real GDP
GDP measured in cibstant/ unchanging $; adjusts for inflation
GDP deflator
measures P of all goods produced; includes only G + S produced domestically. Imported goods not part of GDP thus wont show in GDP deflator
GDP deflator equation
nominal GDP / Real GDP * 100
recession
6 month period of decline in real GDP
peak
highest time of GDP
trough
lowest value of GDP
contraction
recession
- increase in unemployment
- decrease in GDP
