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42 Cards in this Set

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