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39 Cards in this Set

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