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32 Cards in this Set
- Front
- Back
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GDP |
Gross Domestic Product
The market value of all final goods/services produced within the country over a given period of time
GDP = C + I + G + NE |
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Why does the Fed want to manipulate GDP? |
So there is low unemployment and low inflation |
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Market Value |
GDP = Q * P
Products must be produced for market use, not homegrown
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Real GDP |
GDP / P
Shows real production and indicates how well the economy is doing |
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Final |
Does not include intermediate goods
Prevents double-counting |
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Goods/Services |
Goods--tangible Service--action performed
Both must be useful (not harmful) and not free |
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Produced |
Value of production whether we have sold it or not |
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Within the country |
Can be a foreign company producing inside the US |
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Over a given period of time |
Does not apply to a specific date |
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Per Capita Income |
Country's GDP / Population
Not an indicator of standard of living (Highest--Qatar) |
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Two ways to measure GDP |
GDP is the sum of all incomes
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GDP expenditures |
Consumption, exp. of household sector, C Investment, exp. of business sector, I Gvmt, exp. of the government sector, G Net Exports, exp. of foreign sector, NE
GDP = C + I + G + NE |
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Consumption |
Largest component of GDP (65-70%) Most stable |
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Types of consumption |
Durable goods--useful 3+ years
Non-durable goods--useful <3 years
Services |
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Types of Investments |
Fixed--PP&E
Inventory--Produced, but not yet sold |
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Government Spending |
At all levels (Federal, State, Local)
Only includes what gvmt paid on actual goods/services NOT TRANSFER PMTS--Medicare/food stamps |
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Net Exports |
Smallest component
Often negative
"foreign investments" Sometimes added to I, making it gross inv.
NE = Exports - Imports
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Consumer Sentiment Index |
Questionnaires given by Univ. of Michigan
Used to predict what the economy might experience
Consumers are "king of the economy" |
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Crowding Out |
Government spending causes private sector to shrink
Trend in US and Europe |
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Velocity of Money, V |
The average amount of times money has changed hands over a period of time
Calculated by equation of exchange
Determined by consumers |
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Equation of Exchange |
Total value of purchases = Total value of sales
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Velocity as a Variable |
Predictable/Stable, Monetarists like Friedman Monetary policy effective
Unpredictable/Random, Keynesians like Tobin Monetary policy harmful |
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Goals of the Fed |
Low unemployment
Low inflation |
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Unemployment, U |
Number of unemployed looking for job / Labor force
currently 5.6%
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Labor Force |
Number employed + Number unemployed |
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Inaccuracy of U |
Discouraged workers--unemployed not seeking employment
Part-time workers--not considered employed
Black-market workers--receiving income + unemployment benefits |
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Pros to lower U |
More products+services rendered
Lower u = Lower taxes
Strong association in crime+unemployment |
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Fed's main goal |
Lowering inflation |
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Inflation |
Increase in prices this year proportional last year CPI(y2)-CPI(y1) / CPI(y1) * 100
currently 2.5% |
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Who is hurt by Inflation |
Hurts those with fixed income (Retirees, contractor/workers, bond buyers) |
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Who gains from Inflation |
Government, Employers/corporations, banks |
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Cons of inflation |
Increases wealth gap High inflation becomes volatile People avoid using money as MOE --> barter Investments decrease, U increase
"by fighting inflation you can indirectly reduce U" |
