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42 Cards in this Set
- Front
- Back
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ADI
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agreegate demand inflation curve, shows output for each value of inflation
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natural unemployment
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sum of seasonal, frictional, and structural unemployment
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output gap
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percent deviation of actual GDP from potential GDP
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nominal GDP
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value of GDP in a year measured in that year's prices
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real GDP
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real value of all final G&S produced in teh economy, measured in dollars adjusted for inflation
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GDP deflator
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a weighted average of the prices of different G&S, the weights represent hte importance of each G&S in GDP
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CPI
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consumer price index, basket of goods defined by what a typical consumer purchases
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Cyclical unemployment
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unemployment that occurs as the economy goes into recession
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frictional unemployment
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unemployment from people moving from one job to another
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Okun's Law
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a 1% decrease in unemployment rate will decrease output by 2%
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Full-employment
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no cyclical unemployment, economy at full worker capacity
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capital market
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institutions connected w/ raising funds and sharing risks
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real rate of interest
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the real return to saving, equal to the nominal rate of interest - the inflation rate
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national saving
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combined saving of private and public sectors
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basic trade identity
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the sum of borrowing from abroad (net capital flow)+ net exports (exports-imports) = 0
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sources of economic growth
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1) increase in inputs
2) improvement in quality of labor force 3) increase in technology 4)relocation of resources to high productivity areas |
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human capital
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stock of accumulated skills and experience that makes workers productive
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TFP
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total factor productivitiy, relationship between output and aggregate of all inputs, equals growth rate of output- avg input growth rate
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inflation shock
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events that produce temporrary shifts in SRIA curve
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sacrifice ratio
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amount at which unemployment rate must be kept above the the nonaccelerating inflation rate of unemployment to bring inflation down by 1%
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monetary policy rule
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systematic relationship betwen central banks setting of policy and variables it responds to
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automatic stablizers
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variable that makeseconomy stable, eg, taxes that increase with income to prevent inflation
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SRIA
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short run inflation adjustment curve, relationship between output and inflation; eg when output rises, unemployment falls below the natural rate and inflation increases
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three methods of calculating GDP
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1)income approach
2)value added approach 3)final sales approach |
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final goods approach
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GDP=C+I+G+X-M
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value added approach
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GDP= sum(firm revenue-costs of intermediate goods)
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income approach
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GDP=W+T+D+I+P
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nominal GDP equation
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=deflator*real GDP
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absolute advantage
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when one country can produce a good more efficently than another country
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comparative advantage
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when one country has a lower opportunity cost of producing a good
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real rate of interest
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=nominal interest rate-inflation rate
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what determines rate of inflation
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growth rate of money supply
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if real interest rate decreases, what happens to investment and national savings
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investment and national savings increase
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total output change with capital stock
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TOC=1/3*(new-old)
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total output change with TFP
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TOC=new-old
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total output change with labor force
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TOC=2/3*(new-old)
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factors that shift ADI curve right
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gov perchases, lower interest rates, consumer optimism
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factors that shift ADI curve left
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firm pessimism, taxes, consumer pessimism
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important factor contributed to great depression and 90's recession in Japan
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health of financial (Banking) sector
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if inflation increases, what happens to interest rates and private spending
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interest rates increase, private spending decreases
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what happens if gov spending increases with no changes in taxes, effects on national savings, interest rate, private investment, net capital flow, value of $, exports, imports
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national savings, private investment, exports will decrease;
interest rate, net capital flow, value of $, imports will increase |
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what happens to inflation , interest rates, and output if consumers experct a higher interest rate
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inflation and interest rates will increase;
otuput will decrease |
