Week 1

Question 1

Nominal GDP

Answer 1

Measures a country’s gross domestic product using current prices, without adjusting for inflation.

Question 2

Real GDP

Answer 2

An inflation-adjusted measure that reflects the value of all goods and services produced by an economy in a given year.

Often referred to as constant-price GDP, inflation-corrected GDP, or constant dollar GDP.

Used to measure phases of the business cycle

Question 3

Real GDP Per Capita

Answer 3

Real GDP per capita is a measurement of the total economic output of a country divided by the number of people and adjusted for inflation.

It’s used to compare the standard of living between countries and over time.

Question 4

FRED

Answer 4

Federal Reserve Economic Database

Question 5

Business Cycle

Answer 5

Measures GDP

Fluctuation found in the aggregate economic activity of nations.

A cycle consists of expansions occurring at about the same time in many economic activities, followed by similarly general recessions.

This sequence of changes is recurrent but not periodic.

Question 6

Phases of the Business Cycle

Answer 6

Trough
Expansion
Peak
Contraction

Question 7

Recession vs. Recovery

Answer 7

Recessions:
Two consecutive quarters of decrease in GDP

Recoveries:
Two consecutive quarters of increase in GDP

*NBER: National Bureau of Economic Research
Doesn’t wait for the two quarter indicator anymore. *

Question 8

Inflation

Answer 8

Inflation is the increase in overall price level, decline of purchasing power of a given currency over time.

Borrowers benefit from inflation.
People on fixed incomes and lenders lose from inflation.

Measured with Consumer Price Index.

Question 9

Deflation

Answer 9

Decrease in the overall price level, increase in purchasing power.

Borrowers lose from deflation.
Lenders gain from deflation.

Question 10

Disinflation

Answer 10

Decrease in the rate of inflation

but with inflation still positive

Question 11

Hyperinflation

Answer 11

An annual inflation rate of 100 percent or more, and typically it is quite a bit more.

Question 12

Core inflation Rate

Answer 12

Measured with food and energy excluded from the market basket

Question 13

Market Basket / Basket of Goods

Answer 13

Fixed set of consumer products and services whose price is evaluated on a regular basis, often monthly or annually.

This basket is used to track inflation in a specific market or country.

Question 14

Macroeconomic Stabilization Policy

Two Types

Answer 14

Fiscal:
Taxes and government spending.
(Congress)

Monetary:
The money supply and interest rates.
(Federal Reserve)

Question 15

Unemployment Rate

Answer 15

The percent of the labor force that is jobless.

It is a lagging indicator, meaning that it generally rises or falls in the wake of changing economic conditions, rather than anticipating them.

(Total looking) / (Total labor force)

Question 16

Labor Force

Answer 16

Those working or currently looking for employment.

Question 17

Discouraged Worker

Answer 17

A person who is eligible for employment and can work, but is currently unemployed and has not attempted to find employment in the last four weeks.

Distorts unemployment rate

Question 18

Jobless Recovery

Answer 18

A period in which the economy recovers from recession without reducing the unemployment rate.

Jobless recoveries can be caused by companies responding to the recession by reducing workforces, such as by outsourcing labor and investing in automation.

Question 19

Underemployment

Answer 19

A measure of employment and labor utilization in the economy that looks at how well the labor force is being utilized in terms of skills, experience, and availability to work.

The underemployed include those workers who are highly skilled but working in low paying or low skill jobs, and part-time workers who would prefer to be full-time.

Question 20

Circular Flow Diagram

Answer 20

Illustrates how everyone’s income is derived from someone else’s spending.

Not to be confused with Business Cycle

Question 21

Types of Unemployment

Answer 21

1. Frictional:
   People who are between jobs, people in the process of job search
2. Structural:
   A mismatch between the skills that are needed by employers and the skills possessed by job candidates
3. Cyclical:
   Unemployment due to a recession

Question 22

Full Employment

Answer 22

When cyclical unemployment is zero

Question 23

Full Employment Level of Income

Answer 23

The level of GDP when the economy is at full employment. This is sometimes referred to as potential GDP.

Question 24

Natural Rate of Employment

Answer 24

The natural rate of unemployment is frictional unemployment plus structural unemployment.

Question 25

Leading Indicators

Answer 25

Any measurable or observable variable of interest that predicts a change or movement in another data series, process, trend, or other phenomenon of interest before it occurs.

1. GDP
2. Employment Indicators
3. Consumer Price Index. CPI
4. Central Bank Minutes.
5. PMI Manufacturing & Services.

Bloomberg:

1. PMI
2. Changes in Nonfarm Payrolls
3. Housing Starts
4. Inflation CPIs
5. GDP