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52 Cards in this Set
- Front
- Back
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Ch 7
Gross Domestic Product- GDP |
The total market value of all final goods and services produced in a nation during a period of time. |
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Ch 7
Gross National Products- GNP |
The total market value of all final goods and services produced by a nation during a period of time. |
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Ch 7
What does GDP do? |
Measures aggregate output Monetary measure Avoid multiple counting -Market value final good -Ignore intermediate good -Count value added Excludes financial transactions -Public transfer payments -Private transfer payments -Stock market transaction(security exchange) Exclude second hand sales -i.g. sell used car to a friend Avoid or exclude any non-market/non productive transaction |
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Ch 7
Two approaches to GDP. Income and expenditure |
Income Approach- -Count income derived from production -Wages, rental income, interest income,profit Expenditure Approach- -Count sum of money spent buying the final goods -Who buys the goods? |
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Xn= X-M |
Net Exports= Exports - Imports |
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Trade Deficate |
Number of imports is greater than the number of exports |
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GDP=C+Ig+G+Xn |
GDP= Consume+Investment+Govt. Spending+Net Exports |
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Shortcomings of GDP |
Non-Market Activities Leisure Improved product quality The underground economy GDP and the environment Composition and distribution of the output Non-economic sources of well being |
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Ch 9
Business Cycles |
Alteration increases & decreases in economic activity over time.
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Phases of the Business Cycle |
Peak, Recession, Trough, Expansion |
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Inflation |
General rise in the price level Inflation reduces the "Purchasing Power" of money
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CPI |
Consumer Price Index |
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Calculating CPI |
Price of the most recent market basket in the particular year Divide By Price estimate of the market basket in the base year. Times 100 |
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Rule 70 |
70/inflation rate i.g. 70/5%= 14 years |
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Inflation Rate |
CPI this year- CPI last year / CPI last year X 100 |
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Types of inflation
Demand pull inflation |
Too much money!! Excess spending relative to output Central bank issues too much money |
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Cost push inflation |
Due to rise in per unit input costs Supply shocks |
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Who gets hurt by inflation? |
Fixed income receivers Savers- Value of savings depreciates Creditors- Lenders get paid back in cheaper dollars |
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Who is unaffected? |
Flexible income receivers -Cost of living adjustment -SS recipients -Union members Debtors -Pay back loan with cheaper dollars
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Ch 9
Unemployment
Frictional Unemployment ` |
Individuals searching for jobs or waiting to take jobs soon |
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Structural unemployment |
Occurs due to changes in the structure of demand for labor |
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Cyclical Unemployment |
Caused by the recession phase of the business cycle
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Criticism of unemployment |
Involuntary part-time workers counted as full time Discouraged workers are not counted as unemployment |
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Unequal Burdens |
Occupation Age Race/Ethnicity Gender Education Duration |
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Non-economic costs |
(Social Costs) Loss of skills and loss of self-respect Plummeting morale Family disintegration Poverty and reduced hope Heightened Racial and Ethnic tensions Suicide, homicide, fatal heart attacks,mental illness Can lead to violent social and political change |
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Ch 10
Basic Macroeconomic Relationships
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Get ready to learn |
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DI |
Disposable income |
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Disposable income (Money after taxes) |
=Consumption+Savings DI=C+S |
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Income consumption & saving |
Primarily determined by DI Direct relationship
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Consumption schedule |
planned household spending |
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Savings schedule |
DI-C Dis-savings can occur |
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Average propensities
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APC |
Average propensity to consume -Fraction of total income consumed APC= Consumption/income |
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APS |
Average propensity to save -Fraction of total income saved APS= Savings/Income |
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APC+APS=? |
1 or 100% |
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Marginal propensity |
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MPC |
Marginal propensity to consume -Proportion of a change in income consumed MPC= Change in Consumption/Change in income |
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MPS |
Marginal propensity to save -Proportion of a change in income saved MPS= Change in Savings/Change in income |
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MPC+MPS=? |
1 or 100% |
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Interest Rate Investment Relationships |
Expected rate of return The real interest rate Investment demand curve |
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Shifts of investment demand |
Acquisition, mainenance, operating costs Business tax Technological change Stock of capital goods on hand Planned inventory changes Expectations |
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Instability of investment |
Variability of expectations Durability Irregularity of innovation Variability of profits |
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The Multiplier Effect |
A change in spending changes real GDP more then the initial change in spending |
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Multiplier=? |
Change in real GDP/ Initial change in spending |
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Multiplier and Marginal Propensities |
Marginal and MPC directly related -Large MPC results in larger increases in spending Multiplier and MPS inversely related -Large MPS results in smaller increases in spending |
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Ch 12
Aggregate Demand and Aggregate Supply |
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Aggregate Demand |
Real GDP desired at each price level Inversely related -Real balances effect -Interest effect -Foreign purchases effect |
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Consumer Spending |
Consumer wealth Household borrowing Consumer expectations Personal taxes |
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Investment Spending |
Real interest rates Expected returns -Expectations of future business conditions -Technology -Degree of excess capacity -Business taxes |
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Government Spending |
Govt. spending increase -aggregate demand increases(as long as interest rates and tax rates do not change) -More transportation projects -Govt. spending decreases --Aggregate demand decreases --Less military spending |
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Net-Export Spending |
National income abroad Exchange rates -Dollar depreciation & apprecitaion |
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Changes in Aggregate Supply |
Determinants of aggregate supply -Shifts factors Collectively position the AS curve Changes raise or lower per-unit production costs |
