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54 Cards in this Set

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What are the three most valuable variables in macroeconomics?
unemployment, inflation, GDP
What are the three ways of looking at GDP?
income, expenditure, goods produced
Name 7 complications with calculating the GDP.
1. used goods (not counted),
2. inventories (counted),
3. intermediate goods (not counted),
4. imputed rent (counted),
5. imputed government service (counted),
6. home production (not counted),
7. underground economy (not counted)
What is the formula for the GDP deflator?
Nominal GDP / Real GDP
What are the four components of GDP?
consumption, investment, government spending and net exports
What are the three types of consumption?
nondurable goods, durable goods, services
What are the three types of investment?
business fixed investment, residential fixed investment and inventory investment
Does government spending include transfers?
no, transfers are not part of the GDP
What are the three key differences between the GDP deflator and the CPI index?
1. GDP deflator is for all goods, CPI is for only those purchased by consumers
2. GDP deflator includes only goods produced domestically
3. the GDP deflator isn't stuck to a fixed basket as the CPI is (orange prices skyrocketing example)
When measuring unemployment, what are the three categories in which adults are placed?
employed, unemployed and not in the labor force
What are two ways of gathering data for the unemployment rate?
1. polling households (household survey)
2. polling businesses to look at payrolls (establishment survey)
What are three sources of growth in output, according to the book?
increases in capital, increases in labor and advances in technology
Adam Smith said that having an economy be open to international trade spurs economic growth. Is this supported?
yes. open nations have greater growth than closed nations. nations that open up see an increase in growth. and nations that have open trade but don't trade a lot are not as well-off.
What are five costs/problems of inflation?
1. shoeleather cost
2. menu costs
3. cost of dealing with menu costs
4. tax laws
5. need to correct for inflation, makes it a worse measure
Higher inflation means higher interest rates. Higher interest rates means you hold less money in your wallet, which means you have to go to the bank more frequently, which means what kind of cost?
shoeleather cost
This cost of inflation arises because high inflation induces firms to change their posted prices more often.
menu costs
What are the two main causes of unemployment?
job search and wage rigidity
What causes structural unemployment?
wage rigidity
What are three causes of wage rigidity?
1. minimum-wage laws
2. monopoly power of unions
3. efficiency wages
What are two reasons that the minimum wage has a large effect particularly on teens?
1. they are the least skilled and experienced members of the labor force, so they expect to get paid less
2. they use jobs partly as training, so they're willing to get paid less
This theory says that high wages make workers more productive
efficiency-wage
Which is more volatile, investment or consumption?
investment
What law relates the unemployment rate with real GDP?
Okun's law
What does Okun's law state?
increases in the unemployment rate are associated with decreases in real GDP
Express Okun's law in an equation
Percentage change in real GDP = 3% - 2 x Change in the unemployment rate
What are variables that tend to fluctuate in advance of the overall economy?
leading indicators
What are two possible causes of a high rate of unemployment?
a low rate of job finding, and a high rate of job separation
Name three possible reasons for changes in the NAIRU
demographics, sectoral shifts and productivity
What are two reasons Europe has rising unemployment?
1. generous benefits for unemployed workers
2. technologically driven fall in the demand for unskilled workers relative to skilled workers
What does national income depend on according to classical economic theory?
factor supplies and available technology
What are three ways of measuring prices?
1. CPI
2. PPI
3. GDP deflator
What are three differences between the CPI and GDP deflator?
1. basket vs. all goods
2. weighted vs. non-weighted
3. point-of-view of customer vs. al
Name 6 reasons why GDP might not equal welfare?
1. underground economy
2. imputations
3. home production
4. ignores reason for spending (could be to repair damage)
5. Profits may be going elsewhere
6. negative externalities
What are two ways we look at investment in this class?
1. spending on capital
2. spending on goods bought for future use
What three expenditures comprise most of federal expenditure?
welfare, interest on debt and defense spending
Why does growth matter? Give two reasons.
1. improves living standards (including infant mortality)
2. adds up, huge effect in long-run
Give four reasons there are many kids in poor nations.
1. help with work
2. help with caring old people
3. they're fun (and less expensive)
4. less contraception
What are 3 reasons it is somewhat easy for underdeveloped countries to catch up?
1. stand on the shoulder of giants
2. diminished returns
3. depreciation
What's the most important decision you can make in your life?
choosing the right parents
What two institutions did we focus on?
government and financial structure
What's phenomenal about a successful government or financial structure?
government- doesn't hoard power
financial structure- matches money with the ideas
What are 3 reasons latitude matters in growth of nations?
1. frost more prolific in north and south
2. grain not tropical
3. Africa has variety of climates
What is the median duration of unemployment in the US? What is the mean?
median- 22
mean- 37
What are 2 reasons why our measure of unemployment might be too low?
1. discouraged workers (+15 points)
2. underemployment (+3 points)
What are 2 reasons why our measure of unemployment might be too high?
1. measures people who might not really be working hard to find work
2. political skewing of unemployment measure
What was inflation in the US in 2010?
1.6 percent
What's the relation between inflation and interest rates?
move together closely
What is the interest rate in the US?
depends
What are three definitions of recession?
1. whenever GDP falls two consecutive quarters
2. when a committee of economists says so
3. there's a lot of unemployment (people's feelings)
Which is more volatile, investment or consumption?
investment
Name 3 things that determine consumption.
1. interest rates
2. expectations of the future (including inflation)
3. anything that increases income (higher transfers, lower taxes)
What are 3 examples of automatic stabilizers?
1. proportional income tax
2. corporate tax
3. transfer payments
What kind of budget deficit results from a recession?
cyclical budget deficit
What is it called when saving a lot means lower GDP?
paradox of thrift