Unit Five Review Flashcards
Real always means
Adjusted for inflation
Real GDP
gDP measured in current prices
nominal GDP
GDP expressed in constant or unchanging prices
What are the limits of GDP
US companies in other countries Non market activity Black market Externalities Used goods Quality of life
Frictional unemployment
People change jobs, get laid off, take time off right after finish school,
Structural unemployment
When workers skills do not match the jobs that are available
Ex technological advances
Seasonal unemployment
When industries slow or shut down for a season or make second shirts in their production schedules
Cyclical unemployment
Unemployment that rises during economic downturns and falls when the economy improves
Employment rates during business cycle
Unemployment percentages during business cycle
4-6 on expansion
3 at peak
6 on contraction
8 at trough
What does inflation do to consumer purchasing power
Decreasing purchasing power and devalues over the years
What products are used to calculate GDP
Goods and services produced within a countries borders consumer goods and services Business goods and services Government goods and services Income
What is the CPI
Consumer price index
Measures how the average price of a standard group of goods changes over time
Can be used to calculate inflation
Why does the poverty threshold vary
Income level below which income is sufficient to support a family or household varies depending on family size
Relationship between a fixed income and inflation
A fixed income does not increase when prices go up (such as retired people) inflation steadily eats at the real value of their pension check
What are the phases of the business cycle
Expansion- Econ growth, rise GDP
Peak- growth stop, GDP stop highest
Contraction- Econ decline, GDP decline
Trough- Econ stop, GDP stop lowest
Healthy unemployment rate
4-6%
What is the market basket made of
Basket of goods and services everyone uses, Food Water Gas Technology Education Clothes
How has distribution of income changed in United States
farther from
Equality curve
drastic separation from rich and poor, no more middle class
Why is there an income gap
Differences in skills and education
Inheritances
Durable goods
Goods that last a relatively long time such as refrigerators, cars, and DVD players
Nondurable goods
Goods that last a short period of time such as food, light bulbs, and sneakers
Disposable income
Amount of money a person has after taxes
Capital deepening
Process of increasing the amount of capital per worker
Example training programs and on job experience
Workfare
Government program to get people jobs
Underemployment
Working at a job when the person is over qualified or working part time when full time is deserved
Inflation
A general increase in prices
Causes of inflation quantity theory
Too much money in economy leads to inflation
Can be tamed by increasing money supply and selling bonds
Inflation cost push theory
Inflation occurs when producers raise prices in order to meet increased costs
Can lead to wage price spiral (increase wages increase prices etc)
Inflation demand pull theory
Theory that inflation occurs when demand for goods and services exceeds existing supply
Too much money with too few goods
