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39 Cards in this Set
- Front
- Back
Four most commonly cited economic measures.
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1. real GDP
2. unemployment rate 3. inflation rate 4. interest rates |
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Two methods of measuring/calculating GDP.
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1. Expenditure Approach
2. Income Approach |
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Under the expenditure approach, GDP is the sum of what four components?
"GICE" |
Government purchases
Investment Consumption (personal) net Exports (exports minus imports) |
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Under the income approach, GDP is the sum of what eight components?
"I PIRATED" |
Income of proprietors
Profits of corporations Interest (net) Rental income Adjustments for net foreign income Taxes (indirect business taxes) Employee wages Depreciation |
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Gross National Product
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The market value of final goods and services produced by RESIDENTS of a country in a given time period.
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Unemployment Rate
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Measures the ratio of the number of people classified as unemployed to the total labor force.
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Total labor force.
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Includes all non-institutionalized individuals 16 years of age or older who are either working or actively looking for work.
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Formula for unemployment rate.
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#unemployed/total labor force x 100
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Four types of unemployment.
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1. frictional
2. structural 3. seasonal 4. cyclical |
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Frictional unemployment
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Normal unemployment resulting from workers routinely changing jobs or from workers being temporarily laid off.
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Structural Unemployment
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Jobs available in the market do not correspond to the skills of the work force AND unemployed workers do not live where the jobs are located.
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Seasonal Unemployment
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The result of seasonal changes in demand and supply of labor.
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Cyclical Unemployment
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The amount of unemployment resulting from declines in read GDP during periods of contraction or recession or in any period when the economy fails to operate at its potential.
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Natural rate of unemployment
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The normal rate of unemployment.
Sum of frictional, structural, and seasonal unemployment. |
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Full employment
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Level of unemployment when there is no cyclical unemployment. Does not mean zero unemployment.
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Relationship between unemployment and output/real GDP.
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Move in opposite directions.
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Inflation.
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A sustained increase in the general prices of goods and services. It occurs when prices on average are increasing over time.
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Deflation
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A sustained decrease in the general prices of goods and services. It occurs when prices on average are falling over time. Bigger problem than inflation.
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Inflation/Deflation Rate is measure as...
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% change in Consumer Price Index
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Consumer Price Index
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A measure of the overall cost of a fixed basket of goods and services purchased by an average household.
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Formula for Inflation Rate
(change in CPI) |
(CPI this period - CPI last period)
Divided by CPI last period Multiply by 100 |
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Inflation and Deflation are caused by...
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...shifts in the aggregate demand and short-run aggregate supply curves.
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Demand-Pull Inflation
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Caused by increases in aggregate demand.
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Cost-Push Inflation
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Caused be reductions in short-run aggregate supply.
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Relationship of Inflation and Purchasing Power
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Inverse relationship.
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During a period of inflation, holding monetary assets...
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will hurt those with a fixed amount of money or income.
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During a period of inflation, holding monetary liabilities...
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will aid those with a fixed amount of debt.
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Nominal interest rate
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The amount of interest paid or earned measured in current dollars.
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Real interest rate
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the nominal interest rate minus the inflation rate.
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Money
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Set of liquid assets that are generally accepted in exchange for goods and services.
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Money Supply
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The stock of all liquid assets available for transactions in the economy at any given point in time.
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M1
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Money that is used for purchases of goods and services. Typically does NOT include savings accounts or CDs.
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M2
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M1 plus liquid assets that cannot be used as a medium of exchange but that can be converted easily into checkable deposits or other components of M1.
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M3
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M2 plus time CDs in excess of $100,000.
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Monetary Policy
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The use of the money supply to stabilize the economy.
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Three ways the Fed controls the money supply.
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1. Open Market Operations (OMO)
2. Changes in the Discount Rate 3. Changes in the Required Reserve Rate (RRR) |
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Open Market Operations
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Purchase and sale of government securities in the open market.
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Changes in the Discount Rate
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The interest rate the Fed charges member banks for short-term (normally overnight) loans.
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Changes in the Required Reserve Ratio
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Fraction of total deposits banks must hold in reserve.
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