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50 Cards in this Set
- Front
- Back
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GDP |
Gross Domestic Product- market value of all final goods and services produced within a country |
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GDP formula |
Consumption+investment+government purchases+net exports=GDP(Y) |
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Nominal GDP |
The production of goods and services valued at current prices |
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Real GDP |
Measure of amount of the production of goods and services at constant prices |
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GDP deflator |
Reflects only prices of goods and services |
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GDP deflator formula |
(Nominal/Real) x 100 |
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Nominal formula |
(Current year price) x (current year quantities) |
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Real Formula |
(Base year prices) x (current year quantities) |
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Inflation Rate |
Percentage change in some measure of the price level from one period to the next |
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Inflation rate formula |
GDP deflator 2- GDP deflator 1/GDP deflator 1 Percentage |
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GDP problems |
Doesn't value environment, leisure time, poverty, and non market activity |
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CPI Index |
consumer price index-overall costs of goods and service bought by a typical consumer |
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CPI Formula with fixed prices |
Price of basket in current year/price of basket in base year Percentage |
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Problems with CPI index |
prices rise faster than others consumers substitute new goods unmeasured quality change |
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Difference between CPI and GDP deflator |
both measure inflation but CPI includes imports and GDP includes capital goods |
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Calculate inflation using CPI |
CPI yr. 2-CPI yr. 1/CPI yr. 1 |
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Correct variables for inflation |
Amount in todays $$$=(amount in yr. T $$$) x (price level today/price level T) |
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Real interest rate |
Nominal Interest rate-inflation rate |
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Nominal interest rate |
Interest rate that measures change in dollar amounts |
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Financial markets |
instituions thru which a person who wants to save can directly provide funds to a person that wants to borrow |
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bonds |
certificate of indebtedness |
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stocks |
ownership in a firm |
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financial intermediaries |
financial institutions which savers can indirectly provides funds to borrowers (banks, mutual funds) |
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National income identity for close economy |
GDP(Y)=C+I+G I=National savings(S)=Y-C-G |
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Private savings |
income households have let after taxes and paying for private consumptions Private savings=Y-T-C |
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Public savings |
amount of tax revenue government has left after paying for expending If T exceeds G=surplus
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Budget deficit |
If T-G is negative(public saving) |
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National savings |
denoted by S which equals I |
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Market for loanable funds |
In a close economy, it is the only financial market for people to save and lend |
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Supply and demand for loanable funds |
Supply=saving is the source Demand=investment is the source |
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Why does supply slope up and demand slope down |
Supply= if interest rates go up, quantity of loanable funds goes up Demand= falling interest rates reduce cost of borrowing |
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shifts supply and demand |
supply=tax incentives,changes in income/expectations demand=investment incentives, tech process/progress |
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Crowding out effect |
falling investment because of government borrowing |
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Labor force |
employed/unemployed |
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Not in labor force |
full time student/homemaker/retirees/disabled/ discouraged workers |
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labor force participation rate |
total # of workers/adult population |
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Unemployment rate |
# of unemployed/labor force |
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Problems with unemployment rate |
excludes discourage workers doesn't distinguish between full time and part time doesn't account undertable |
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natural rate of unemployment |
normal rate of unemployment around which actual unemployment rate fluctuates, thats frictional and structural |
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Frictional |
Jobs search and shift in economy |
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Unemployment insurance |
designed to offer workers partial protection against job loss |
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structural unemployment |
When there is fewer jobs than workers |
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minimum wage laws |
may exceed equilibrium wage for least skilled or experienced workers |
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unions |
collected bargaining to negotiate higher wages |
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Efficiency wages |
firms voluntarily pay above equilibrium to boost productivity |
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worker health |
poor nutrition is common problem. Higher wages=productivity |
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worker turnover |
hiring and training workers is costly |
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worker quality |
Want the best pay the $$$ |
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Worker effort |
workers can work hard or shirk |
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Cydlical |
devotion of unemployment from natural rate |
