Unit 2 Flashcards
private sector
part of the economy not connected to government
public sector
part of economy controlled by government
factor payments
payment for factors of production (rent, wages, interest, profit, etc.)
transfer payments
government redistributes income
subsidies
government payments to businesses
GDP (growth domestic product)
dollar value of all FINAL goods + services produced within a country in a year
equation for percent change in GDP
(year2-year1)/year1 * 100%
GDP per capita
GDP per person (take total GDP and divide by population)
What is NOT included in GDP?
- intermediate goods
- financial transactions (stocks, bonds, real estate) and used goods
- nonmarket/illegal activities (household production, drugs, etc.)
equation for calculating GDP
GDP(y) = C+I+G+(X-M)
consumer spending (C), business investment (I), government spending (G), Net Exports (X-M)
frictional unemployment
temporary unemployment/between jobs
structural unemployment
changes in the labor force due to skills becoming obsolete
cyclical unemployment
unemployment caused by a recession
normal rate of unemployment
4-6%; economy = good at this point
Why do some countries have higher GDPs?
- Economic System
- Rule of Law
- Capital Stock
- Natural Resources
inventories
goods produced and stored in anticipation of later sales (COUNT TOWARDS GDP IN THE YEAR IT WAS MADE)
inflation rate
% change in prices from year to year
Nominal vs Real GDP
deflator = nominal/real
3 Main Causes of Inflation
- government prints too much money
- Demand-Pull Inflation (more demand/consumption = inflation)
- Cost-Push Inflation (higher production=increase in prices)
real interest rate
real IR = nominal - expected inflation
