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26 Cards in this Set
- Front
- Back
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What is Aggregate Output?
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The total quantity of goods and services produced in an economy in a given period. We call this GDP.
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What is Income Approach?
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Sum total of incomes of individuals living in a country during 1 year
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What is Production Approach?
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Market value of all final goods and services calculated during 1 year. The production approach is also called the Value added method. This method consists of three stages:
1.Estimating the Gross Value of domestic Output out of the many various economic activities 2. Determining the intermediate consumption 3. Deducting intermediate consumption from Gross Value to obtain the Net Value of Domestic Output. |
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What is Expenditure Approach?
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Thee market value of all domestic expenditures made on final goods and services in a single year
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What is Nominal GDP?
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Aggregate output expressed in terms of the current price
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What is Real GDP?
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Aggregate output expressed in terms of a common price
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What is the notation for Real and Nominal GDP?
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Real: Yt
Nominal: $Yt |
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What is the difference between a growth graph of GDP and a graph of GDP?
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GDP Growth:
Y-axis= Percent X-axis= Years Wavy graph, many peaks and valleys, with upward trend GDP: Y-axis= Dollars X-axis= Year Smoothly Curving graph |
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What is output growth and its formula?
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Rate of change of output overtime.
Formula: (Yt - Yt-y) / Yt-y |
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What is an expansion?
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Time period in which output growth is positive
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What is a recession?
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Time period in which output growth is NEGATIVE
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What is unemployment?
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The number of people who do not have a job, but want one
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What is the labor force and it's formula?
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The sum of employment and unemployment
L = N+U |
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What are discouraged workers?
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Unemployed who give up trying to find a job and are no longer counted as unemployed
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What is the Participation rate?
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The ratio of the labor for to the total population of working age
Participation rate= L / Total Working Age Population |
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What are some issues with unemployment?
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1) We do not want 0% unemployment (We want people leaving for better jobs - frictional unemployment)
2) We want to get to the natural rate of unemployment 3) Want to avoid structural unemployment (supply of labor is greater than demand) 4) We want to avoid cyclical unemployment 5) Not all unemployment is the same |
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Why do we care about unemployment?
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1) Welfare of unemployed
2) Higher unemployment indicates inefficient human capital allocation |
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What are unemployment notations?
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N= employment
U= unemployment L= labor force u= unemployment rate |
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What is unemployment rate formula?
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u = U/L
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What is the inflation rate and it's formula?
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The rate at which the price level increases.
Notation: π π = (Pt - Pt-1) / Pt-1 |
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Why do we care are inflation?
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1) Some prices rise faster than others
2) Inflation causes uncertainty |
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What is the best inflation rate?
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-Somewhere between 1% and 4%
-Right now, Fed is targeting 2% |
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What is the GDP deflator and it's formula?
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Ratio of nominal GDP to real GDP.
Pt = Nominal GDP / Real GDP = $Yt / Yt |
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What is the consumer price index (CPI)?
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The cost in dollars of a specific bundle of goods relative to a base year.
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What is Okun's Law
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Output growth and the change in the unemployment rate are negatively related
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What is the Phillip's curve?
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If unemployment is low, inflation will be high and vice versa
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