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34 Cards in this Set
- Front
- Back
GDP
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measures the current value of G and S produced domestically (country production)
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Nominal GDP
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GDP measured in terms of current price
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GNP
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measures the current value of G and S produced by a countries citizens
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Expenditure Approach
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uses total expenditures onm all final G + S produced during a year (demand based)
1. Personal consumption 2. Gross Private Investment 3. Government Consumption 4. Net Experts |
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Resource Cost
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Income approach(supply side) measures GDP by summing
1. Employee compensation 2. Proprietor's Income 3. Rents 4. Corporate Profits 5. Interest Income Indirect Buisness Tax Depreciation Net Income of Foreigners |
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National Income (NI)
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total earning of a nation's citizens
1. Employee compensation 2. Proprietor's Income 3. Rents 4. Corporate Profits 5. Interest Income |
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Real GDP
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GDP measured in terms of prices from a base year
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Price Index
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Index to indicate relative price change between periods
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GDP deflator
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general price index with a very large market basket- all find G + S produced (Base year 1992)
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Consumer Price Index (CPI)
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price index with small market basket (364 items) Market basket is fixed from year to year
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Personal Income (PI)
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total income recieved by Individuals (include transfer payments like SS and welfare)
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Disposable Income (DI)
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Personal income- taxes
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4 phases of the business cycle
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1. Peak
2. Contraction 3. Recessiary Trough 4. Expansion |
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Recession
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a period during which rGDP declines for 2 or more successive quarters.
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depression
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prolonged or severe recession
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Labor force
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people 16+ who are employed or seeking employment
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3 types of unemployment
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Frictional unemployment
Structural unemployment Cyclical Unemployment |
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Frictional unemployment
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* caused by constant changed in the economy prevent qualified workers from being matched with jobs.
* 2 causes - imperfect information - job search (until cost and benefit are equal) |
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Structural unemployment
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* caused by structural changes in the economy that eliminate some jobs while generating others for which unemployed workers are not qualified.
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Cyclical Unemployment
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* changed in the general level of economic productivity
* Economy<full capacity yields positive Cyclicial unemployment * Economy> full capacity yields negative cyclical unemployment |
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Full employment
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*When cyclical unemployment equals 0.
*However at full employment both frictional and structural unemployment still exist. |
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Employment/ Population Ratio
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# of people 16 or older who are employed as a percentage of total population
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inflation rate (i)
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i= (this years price index-last years PI)/last years PI
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Stagflation
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period of high inflation coupled with low or negative real growth in output (GDP)
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Permanent income hypothesis
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consumption depends upon expected LR income, so a large portion of any temperary increase in income will be saved (smoothing of consumption partner)
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Three Self Correcting Mechanisisms of a Market Econonmy
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1. Comsumption demand
2. Real interest rates 3. Resources Prices |
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Comsumption Demand
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* in expansion household save larger proportion of income
* in recession households save less |
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Real Interest Rates
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* in expansion real interest rates rise due to increased demand for borrowed funds which reduces borrowing and capital spending
*during recession real interest rates decline due to borrowing and spending rising. |
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Resource Prices
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* when economy is greater then full employment capacity prices of resources increase
* when economy is under capacity cost of resources are low encouraging spending |
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Say's Law
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it is impossible to over produce relative to total demand because supply (production) creates it own demand (supply side)
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Aggregate Expenditure (AE)
(Keynesian) |
firms will supply a level of output(GDP) that they believe will be demanded (expenditures) during the next period
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rGDP
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rGDP= planned expenditures
rGDP= planned C+I+G+NX |
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Expenditures multiplier (M)
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M= 1/(1-MPC)
MPC= marginal propensity to consume- the proportion of each additional dollar of income spent on personal consumption (not shared) |
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Expenditures Multiplier shows...
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shows why small changes in C, I, or G can cause large changes in output
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