Week 1 Flashcards
Nominal GDP
Measures a country’s gross domestic product using current prices, without adjusting for inflation.
Real GDP
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
Real GDP Per Capita
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.
FRED
Federal Reserve Economic Database
Business Cycle
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.
Phases of the Business Cycle
Trough
Expansion
Peak
Contraction
Recession vs. Recovery
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. *
Inflation
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.
Deflation
Decrease in the overall price level, increase in purchasing power.
Borrowers lose from deflation.
Lenders gain from deflation.
Disinflation
Decrease in the rate of inflation
but with inflation still positive
Hyperinflation
An annual inflation rate of 100 percent or more, and typically it is quite a bit more.
Core inflation Rate
Measured with food and energy excluded from the market basket
Market Basket / Basket of Goods
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.
Macroeconomic Stabilization Policy
Two Types
Fiscal:
Taxes and government spending.
(Congress)
Monetary:
The money supply and interest rates.
(Federal Reserve)
Unemployment Rate
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)
Labor Force
Those working or currently looking for employment.
Discouraged Worker
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
Jobless Recovery
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.
Underemployment
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.
Circular Flow Diagram
Illustrates how everyone’s income is derived from someone else’s spending.
Not to be confused with Business Cycle
Types of Unemployment
- Frictional:
People who are between jobs, people in the process of job search - Structural:
A mismatch between the skills that are needed by employers and the skills possessed by job candidates - Cyclical:
Unemployment due to a recession
Full Employment
When cyclical unemployment is zero
Full Employment Level of Income
The level of GDP when the economy is at full employment. This is sometimes referred to as potential GDP.
Natural Rate of Employment
The natural rate of unemployment is frictional unemployment plus structural unemployment.
