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34 Cards in this Set

  • Front
  • Back
measures the current value of G and S produced domestically (country production)
Nominal GDP
GDP measured in terms of current price
measures the current value of G and S produced by a countries citizens
Expenditure Approach
uses total expenditures onm all final G + S produced during a year (demand based)
1. Personal consumption
2. Gross Private Investment
3. Government Consumption
4. Net Experts
Resource Cost
Income approach(supply side) measures GDP by summing

1. Employee compensation
2. Proprietor's Income
3. Rents
4. Corporate Profits
5. Interest Income
Indirect Buisness Tax
Net Income of Foreigners
National Income (NI)
total earning of a nation's citizens

1. Employee compensation
2. Proprietor's Income
3. Rents
4. Corporate Profits
5. Interest Income
Real GDP
GDP measured in terms of prices from a base year
Price Index
Index to indicate relative price change between periods
GDP deflator
general price index with a very large market basket- all find G + S produced (Base year 1992)
Consumer Price Index (CPI)
price index with small market basket (364 items) Market basket is fixed from year to year
Personal Income (PI)
total income recieved by Individuals (include transfer payments like SS and welfare)
Disposable Income (DI)
Personal income- taxes
4 phases of the business cycle
1. Peak
2. Contraction
3. Recessiary Trough
4. Expansion
a period during which rGDP declines for 2 or more successive quarters.
prolonged or severe recession
Labor force
people 16+ who are employed or seeking employment
3 types of unemployment
Frictional unemployment
Structural unemployment
Cyclical Unemployment
Frictional unemployment
* caused by constant changed in the economy prevent qualified workers from being matched with jobs.
* 2 causes
- imperfect information
- job search (until cost and benefit are equal)
Structural unemployment
* caused by structural changes in the economy that eliminate some jobs while generating others for which unemployed workers are not qualified.
Cyclical Unemployment
* changed in the general level of economic productivity
* Economy<full capacity yields positive Cyclicial unemployment

* Economy> full capacity yields negative cyclical unemployment
Full employment
*When cyclical unemployment equals 0.
*However at full employment both frictional and structural unemployment still exist.
Employment/ Population Ratio
# of people 16 or older who are employed as a percentage of total population
inflation rate (i)
i= (this years price index-last years PI)/last years PI
period of high inflation coupled with low or negative real growth in output (GDP)
Permanent income hypothesis
consumption depends upon expected LR income, so a large portion of any temperary increase in income will be saved (smoothing of consumption partner)
Three Self Correcting Mechanisisms of a Market Econonmy
1. Comsumption demand
2. Real interest rates
3. Resources Prices
Comsumption Demand
* in expansion household save larger proportion of income
* in recession households save less
Real Interest Rates
* in expansion real interest rates rise due to increased demand for borrowed funds which reduces borrowing and capital spending
*during recession real interest rates decline due to borrowing and spending rising.
Resource Prices
* when economy is greater then full employment capacity prices of resources increase
* when economy is under capacity cost of resources are low encouraging spending
Say's Law
it is impossible to over produce relative to total demand because supply (production) creates it own demand (supply side)
Aggregate Expenditure (AE)
firms will supply a level of output(GDP) that they believe will be demanded (expenditures) during the next period
rGDP= planned expenditures
rGDP= planned C+I+G+NX
Expenditures multiplier (M)
M= 1/(1-MPC)

MPC= marginal propensity to consume- the proportion of each additional dollar of income spent on personal consumption (not shared)
Expenditures Multiplier shows...
shows why small changes in C, I, or G can cause large changes in output