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30 Cards in this Set
- Front
- Back
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What is CPI
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A measure of the overall cost of goods and services.
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How is CPI calculated?
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1. fix the basket
2. find the prices 3. compute the basket's cost 4. choose a base year and compute CPI (Price of basket currently) / (Price in base year) X 100 5. Compute the inflation rate (CPI year 2 - CPI year 1) / (CPI year1) X 100 |
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What is the PPI?
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Producer Price Index: a measure of the cost of a basket of goods and services bought by firms.
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What are some problems with CPI?
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1. Substitution bias- higher than it should be
2. Introduction of new goods 3. Unmeasured quality change |
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What is the GDP deflator?
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Ratio of nominal GDP to real GDP
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What does the GDP deflator reflect?
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The prices of all goods and services produced domestically.
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What does the CPI include that the GDP does not?
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Imports
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Formula to calculate an amount in today's dollars
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Amount in year T dollars X (Price level today) / (Price level year T)
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What is the nominal interest rate?
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Interest rate as usually reported without a correction for the effects of inflation.
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What is the real interest rate?
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Interest rate corrected for the effects of inflation and equals nominal interest rate - inflation rate
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What does the real GDP tell you?
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Gives an idea of the standard of living for an economy.
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What is the growth rate?
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How rapidly real GDP per person grew in the typical time. It ranks countries by income change.
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What is productivity?
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The quantity of good and services produced for each unit of labor.
It is the key determinant of living standard. |
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An economy''s ________ is an economy's _________.
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income; output
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What are the determinants of productivity?
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Labor
education/skills natural resources physical capital technological knowledge |
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How do governments encourage saving?
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tax breaks
increased interest rate increase sales tax |
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What is the Catch-Up Effect?
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Countries that are more poor tend to grow faster.
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What is a foreign direct investment?
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A capital investment that is owned and operated by a foreign entity.
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What is a foreign policy investment
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Investment financed with foreign money but operated by domestic residents.
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For the poorest countries, what are inward-oriented policies?
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To avoid interaction with the rest of the world.
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For he poorest countries, what are outward-oriented policies?
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To integrate into the world economy.
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What is the financial system?
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A group of institutions in the economy that help match one person's savings with another investment.
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What financial intermediaries?
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Mutual Funds- sells shares to the public and use proceeds to buy a portfolio of stocks and bonds.
Banks- take deposits from savers and give loans to borrowers. |
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What are some advantages of mutual funds?
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Diversification
Access to professional money manager |
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What is the Gross Domestic Product
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Y=C+G+I+NX
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In a closed economy NX equals what?
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Zero (0)
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National Savings (S) equals what?
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S=I
I= Y-C-G |
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What is Policy 1?
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Saving Incentives; shelter some savings from taxation
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What is Policy 2?
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Investment Incentives; investment tax credit
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What is Policy 3?
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If government runs a surplus, saving curve shifts to right, interest goes down.
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