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36 Cards in this Set
- Front
- Back
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GDP
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Gross Domestic Product - value of output of all goods and services produced in a country
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How GDP is measured
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o Overall demand for goods/services
o What is produced |
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• 4 goals for overall health of macro economy
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o Economic growth (GDP) – living standard
o Unemployment o Inflation o Balance of trade – flow of goods/financial capital between countries |
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• Framework
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o Aggregate demand
o Aggregate supply o Keynesian Model o Neoclassical Model |
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• Policy Tools
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o Monetary policy
o Fiscal policy |
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What makes up GDP
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• Consumption = 2/3 of GDP
• Investment = 15% GDP • Government Spending = 20% GDP |
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o Trade Balance
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gap between exports and imports
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o Trade Surplus
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exports exceed imports (1960s-70s)
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o Trade Deficit
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imports exceed exports (1980s)
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When exports = imports
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• Foreign trade has no effect on GDP
• May have effects on particular industries – shifts in workers/physical capital |
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GDP Formula
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GDP = C+I+G+I+E
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5 categories of GDP
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• Durable goods – long lasting goods (cars/fridge)
• Services • Largest part of GDP • Structures • Non-durable goods • Change in inventories – produced but is not yet sold |
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o Double Counting
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potential mistake in which output is counted two or more time as it travels through the stages of production
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o Intermediate goods and services
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output provided to other businesses at an intermediate stage of production – not for final users
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Calculate per capita GDP
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Per capita GDP=GDP/Population
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o Strip inflation
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only an increase in quantity
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o Business cycle
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relatively short-term movement of economy in/out recession
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o Rise of GDP under states SOL
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• Workweek – fell from 60-40 hours
• Increase in life expectancy and health • Increase in education |
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o Rise of GDP overstates SOL
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• Increase in crime
• Increase in traffic congestion • Increase in inequality of incomes |
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Third group of unemployment
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• Retirement
• Children • Taking care of children • Break • Don’t want a job |
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o Out of labor force
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not working/looking for work
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o Unemployed
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without job, available to work – looking for work in previous 3-4 weeks
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o Unemployment Rate
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percent of adults in labor force seeking jobs but do not have jobs
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Calculate unemployment rate
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unemployed/total in job force
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o Supply-demand model
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Labor market should move towards equilibrium wage/quantity
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• Why wages might be sticky downward
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o Model with flexible wages – doesn’t describe unemployment well – anyone willing to work at a good wage will find a job – not true
o Sticky downwards because of economic law and institutions o Low skilled workers paid minimum wage – illegal to reduce wages o Union workers – wage cuts may violate contracts – causing strikes |
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o Implicit contract
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unwritten agreement in the labor market that the employer will try to keep wages from falling when the economy is weak or the business is having trouble, and the employee will not expect huge salary increases when the economy/business is strong (insurance)
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o Efficiency Wage Theory
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theory that the group, will increase if they are paid more
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o Adverse selection of wage cuts
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if the employer reacts to poor business conditions by reducing wage for all workers, the best workers are most likely to leave – rather to layoffs and firing
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o Insider/outsider model
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already working for firms = “insiders” new employees “outsiders”
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o Relative wage coordination argument
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if most workers were willing to see a decline in their own wages in bad economic times, as long as everyone else also experienced this - there is no obvious way for a decentralized economy to implement such a plan
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o Cyclical unemployment
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unemployment closely tied to the business cycle, like higher unemployment during the recession
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o Natural rate of unemployment
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unemployment rate that would exist in a growing/healthy economy from the combination of economic, social, political factors of that time – not including recession
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o Frictional unemployment
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occurs as workers move between jobs
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prime age
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• 25-54
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reasons for Natural Rate of unemployment in recent years
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• Internet – new tool for job seekers
• Growth of temporary work industry – help workers find jobs – reduce frictional unemployment • Baby boom – young workers high in 1970s – lower today |
