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28 Cards in this Set
- Front
- Back
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what is gdp?
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the total value of all final goods and services produced in a year within that country
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what is national income?
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the sum of income earned by the factors of production owned by a country's citizens
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what is personal income?
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the money income received by households before personal income taxes are subtracted
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what is disposable income?
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it is personal income minus personal income taxes
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what is the expenditure approach of gdp?
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it says that gdp can be calculated by adding up spending by households, firms, the government, and the rest of the world by using C+I+G+net exports
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what is the income approach of gdp?
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it says that gdp can be calculated by adding depreciation and net income of foreign workers and subtracting subsidy payments from national income:
gdp=ni+depreciation-subsidies+net income of foreign workers |
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what are subsidy payments, and why are they not a part of gdp?
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they are payments made by the government to producers as a part of the producer's income. they are not a part of gdp because they are not made in exchange for goods or services
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regarding their involvement of foreign and domestic workers, what is the difference between gdp and NI?
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with gdp, the income of all workers working domestically is factored, regardless if they're foreigners; additionally, the income of citizens working abroad are not factored. with NI, the income of a country's citizens, regardless if they're working abroad, are factored; the income of foreigners working domestically are not factored
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what is inflation?
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a sustained increase in all prices, not just one or a few.
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what is the difference between nominal moneys and real moneys?
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nominal moneys are the number of real dollars involved; real moneys is the purchasing power the dollars with inflation factored in
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what is money illusion?
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it is when there is the appearance of an increase in salary because of inflation, causing excessive spending when really the purchasing power of that increased salary is the same
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what are menu costs?
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when inflation causes stores to change the price listings of their products (a detrimental effect)
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what is the formula for CPI?
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CPI=cost of base year market basket at current prices/cost of base year market basket at base year prices (x 100)
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what is the formula for measuring inflation between years (using Y and Z as variables, with Z being the more recent year)?
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inflation between years Y and Z=[(cpi in year z/cpi in year y)-1] x 100
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what is the formula for converting a year's nominal gdp into real base year dollars?
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real gdp=(nominal gdp/cpi for the same year as the nominal figure) x 100
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why may cpi overestimate inflation?
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it places too much dependency on the base year market: for instance, if the price of concert tickets goes up considerably, one might substitute movies for concerts; essentially, the cpi does not account for substitutions for less expensive products, thus not accounting them in its measure of inflation
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what does the ppi measure, and what is its formula?
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the ppi measures the prices of wholesale goods (like lumbers and steel); it's a good predictor of future inflation because producers, who use those wholesale goods in producing final products, often pass their costs increases on to consumers
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what are the conditions of being a labor force participant, and what is the labor force participant rate?
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employed and unemployed adults, not all people of working age; the labor force participant rate is the number of people in the labor force divided by the working-age population
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what must you be to be considered "employed"?
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a labor force participant willing and able to work who has made an effort to seek work in the past four weeks
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what is the unemployment rate?
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the number of unemployed workers divided by the number in the labor force
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what is frictional unemployment?
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when unemployed workers and firms search for the best available worker-job matches; this most often occurs with new labor force entrants and skilled workers temporarily between jobs because of relocation or new job searching (natural unemployment)
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what is structural unemployment?
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the result of skills mismatch between workers and jobs. this most often occurs when new technological advances antiquate jobs like blacksmiths and typists; it also occurs when poorly educated people find themselves unemployed due to their lack of unmarketable skills (natural unemployment)
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what is cyclical unemployment?
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this results from downturns in the business cycle; during recessions and depressions, firms are likely to hire fewer workers or let existing workers go. however, when the economics recovers, those workers will often find worker again
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what is seasonal unemployment?
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the result of changes in hiring patters due to the time of the year
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what are discouraged workers?
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those people willing and able to work, but so frustrated in their attempts that they stop trying. because they are not making an effort to find a job, they are not counted in official unemployment statistics
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what are dishonest workers?
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unreported workers or people without jobs reaping unemployment benefits; they drive the unemployment rate upward
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what is the natural rate of unemployment?
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the number is 5%, and is most often the sum of of frictional and structural unemployment. an economy running at this rate is functioning normally. with full employment, there is no cyclical unemployment
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what is arthur okun's law?
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it's an estimate that says that for every one percentage point increase in the unemployment rate above the natural rate (5%), output decreases by 2 to 3 percentage points
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