Unit 2 Flashcards
Per Capita GDP
Takes a nation’s population and divides it into the GDP
Do non-market transactions (underground economy) count in GDP?
NO; it is estimated that 5% to 10% could be added to the US GDP if these markets counted
Three sections of Per capita GDP
- High Income- US, Japan, Germany
- Middle Income- China, South Africa, Brazil
- Low Income- Haiti, Afghanistan, Sudan
Should median or mean be used to see the average of a nations GDP
Median because the mean can be skewed by billionaire companies and people
Non-Market transactions are…
illegal activities and legal activities not reported to the government
Law of increasing opportunity cost
As production moves towards the extreme ( either axis) at some point, the additional opportunity cost increase
Deflation
A decrease in the average price level
Unemployment
Anyone 16 years old or older who is actively seeking employment and does not have a job
Business Cycle
The changes in business activity over time
Who makes up the Non-Labor force
disabled, stay-at-home parents, retirees, and students
Frictional unemployment
Fired/ Quit
Structural Unemployment
Structure of the economy changes causing a mismatch between job skills and available jobs
Cyclical Unemployment
Due toa recession/ sales decrease
Seasonal Unemployment
Due to weather and season changes
Induced unemployment
Due to government law/regulations
Law of increasing opportunity cost
As production moves towards the extremes(either axis) at some point, the additional opportunity cost increases
Unemployment rate for the US
3.7%
Unemployment rate for Illinois
4.8%
Natural rate of unemployment
4%-6%
unemployment consist only frictional and structural unemployment
2 monthly methods to measure unemployment
- Household survey
- Non-farm payroll survey
2 Adjustments to the household survey number
- Discouraged workers
- part time workers who want full time
What statements about the CPI and PCE are correct?
The CPI makes substitutions every year and the PCE makes substitutions four times a year
What factors will cause AD(Aggregate demand) to shift
Shift with
1. consumption
2. investments
3. gov’t spending
4. Exports
shift against
1. imports
so imports increase AD decreases
The SRAS and LRAS curves show which perspective
SRAS uses current production choices
LRAS is the ideal production level investment
demand-pull inflation
a. AD in economy increases
b. The increasing AD causes shortage
c. The shortage in those markers lead to price rise
d. If people/buisnesses respond to those price increase by raising prices then prices increase throughout the economy
Cosh-Push Inflation
a. key resource cost rise
b.SRAS in economy decreases
c. The decreasing SRAS causes shortage
d. The shortage in those markets lead to price increase in those markets
e. If people businesses respond to those price increases by raising their prices then prices throughout the economy increase
Why is demand pull inflation better than cost push inflation
With Demand Pull GDP increases with the shift of AD right. Meaning that even though inflation is rising GDP is also increasing. If GDP is increasing it can be assumed that unemployment is decreasing
But with cost push GDP decreases and if GDP is decreasing then it can be assumed unemployment is increasing,
Five parts of the Business Cycle
- Peak
- Recession
- Trough
- Recovery
- Expansion
Specialiation
occurs when a nation produces what it has the greatest comparative advantage in
Comparative advantage
An advantage a nation has when it can produce a good at a lower opportunity cost
Terms of Trade
The rate at which nations exchange/ trade goods
how do people loose from trade?
imports replace the work they do. Those with higher education or training adjust better than those with a high school education or less in the US
What factors cause an increase in income inequality?
- technology
- education
- tax policy
- trade
Inflation
a rise in the average price level
Deflation
A decline in the average price level
Hyper inflation
An unpredictable fast upward movement in the price levels
Rule of 70
divide 70 by the inflation rate and it will tell you how many years it will take for prices to double
highest grossing movie of all time?
Gone with the Wind
Ways to measure inflation
CPI- consumer price index and PCE- personal consumption expenditure index
Cost of Unanticipated inflation
- decline in economic efficiency
- shifts in investment to protect against inflation that would not occur otherwise
- shift of wealth from poorer group sto wealthier groups as the wealthier can afford the time and money to catch up
How do borrowers benefit from inflation ?
If a borrower borrows 1000 to produce pens and pens at the time are $2 but then increase to $4 the borrower can make a quicker profit to pay off the loan
Winners of inflation
Borrowers
Adjustable incomes
Speculators
Wealthy
Losers of inflation
Lenders
Fixed income
Basic savers
Poorer individuals
