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29 Cards in this Set

  • Front
  • Back
What is economic growth?
= An increase in real GDP (per capita) ocurring over some time period
Ral GDP per capita
(Real GDP)/(Size of population)
How does economic growth relaz society's constraints on production?
An economy that is experiencing economic growth lessens the burden of scarcity (better able to meet people's wants and socioeconmic needs).
The rule of 70 (Approximate # of yrs required to double real GDP)
(70)/ (annual percentage of growth [in percentage form])
2 Fundamental Ways Society Can Increase its Real Output and Income
(1) Increase its inputs of resources (land, labor, capital, entrepreneurial)
(2) Increase the productivity of those inputs
What is the 'the rule of 70'?
The approximate # of yrs required to double real GDP
What is productivity?
A measure of average (real) output.

Eg. Productivity of labor = (Real Output)/(Hours of Work)
3 Understatements of Gain in Economic Well-Being (Things Unaccounted for in Calculating Real GDP every year)
(1) Improved Goods and Services (i.e iceboxes => fridges)
(2) Added leisure (50 hrs of work-week => 35 hrs)
(3) Other impacts of growth (Effects of Stressful work environment, greater human security, etc. on workers and society)
4 Phases of Business Cycle (Time on X-axis, Level of Real Output on Y-axis)
(1) Peak
(2) Recession
(3) Trough
(4) Recovery
Attributes of 'Peak'
(1) Economy near Full Employment
(2) Level of Real output near economy's capacity
(3) Price level likely to rise
Attributes of 'Recession'
(1) Decline in Total Output, Employment, and Trade
(2) Little Business Activity
(3) Price level falls if recession ocurrs for lond period of time
Attributes of 'Trough'
(1) Output and Employment at lowest levels
Attributes of 'Recovery'
(1) Output and Employment Rising
(2) Price-level begins to rise as well
During recession, what happens to some industries?
- Capital goods = housing, heavy equipment, etc.
- Consumer durables = cars, personal computers, fridges, etc.)
During recession, industries that produce capital goods and consumer durables suffer greater output and employment declines than do service and nondurable consumer goods industries.
3 groups of unemployment
(1) Under 16 and/or institutionalized
(2) Not in labor force (Could work but are not and not actively seeking it)
(3) Employed
Unemployment Rate
[ (Unemployed)/ (Labor Force) ] x 100
2 Understatements of Unemployment Rate
(1) Part-Time employment = fully employed
(2) Discouraged workers (unsuccessful at getting jobs too many times before) = Not in Labor Force
3 Types of Unemployment
(1) Frictional
(2) Structural
(3) Cyclical
What is Frictional Unemployment?
* search/wait unemployment
* workers searching for jobs or waiting to take jobs in near future
* friction is inevitable
What is Structural Unemployment?
Unemployment of workers whose skills are not demanded, who lack sufficient skill to obtain employment available, or who cannot easily move to locations where jobs are available
What is Cyclical Unemployment?
Caused by insufficient total spending (in a recession)
- if there is none of this, there is full employment
What happens when NRU produces at its potential output or is "fully employed"?
The number of job seekers equals the number of job vacancies
What is inflation?
The rise in the general level of prices (because some prices may fall and some prices may stay constant while others rise)
How do you measure inflation?
Calculate the Consumer Price Index (CPI) - updated every 2 yrs
CPI = ?
(price of the most recent market basket of a particular year) / (price of the same market basket in a previous year[s]) x 100
What are the 2 types of inflation?
(1) Demand-Pull Inflation
(2) Cost-Push Inflation
Demand-Pull Inflation (Explanation)
When resources are already fully employed, the business sector cannot respond to excess demand by expanding output. Thus, the excess demand pulls up the prices of the limited output.
Demand-Pull Inflation (IOW)
Too Much Spending Chasing Too Few Goods
Cost-Push Inflation (Explanation)
An increased per unit cost of production decreases supply of G+S. Thus, Costs are pushing the price level upward in Supply Shocks.