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72 Cards in this Set

  • Front
  • Back
What illustrates recurring growth and decline in real GDP?
Business cycles
The point at which real output reaches a maximum during a business cycle is called the…
Peak
The period during which real output falls during a business cycle is called….
Recession/Contraction
The phase of the business cycle that follows a recession is known as the….
Trough
As a general rule, a recession is a decline in real GDP lasting at least…
Six Months
As a general rule, a recession occurs when there is a 6 consecutive month fall in______.
Real GDP
Since World War II, the average length of recessions in the United States has been _____.
11 months
What are the four phases of the business cycle?
peak, recession, trough and recovery
What stage of the business cycle immediately follows the trough?
Recovery
The phase of the business cycle follows a recession.
Trough
A phase in the business cycle in which the economy’s real GDP declines is known as ____.
Recession
A long and deep recession in the business cycle is ____.
Depression
Since 1929, real GDP in the United States has grown at an average annual rate of about _____.
3 percent
Economic growth is measured by the annual percentage increase in a nation's level of _____.
Real GDP
The government's chief forecasting gauge for business cycles is the ______.
Index of Leading Indicators
GDP Formula
GDP = C + Ig + G + (X-M)
(C) Consumption Spending –
In other words, consumer spending (everything but the house).
(Ig) Gross Private Investment –
This is basically business spending AND consumer housing.
(G) Government spending
The amount that the government has spent in the last twelve months
(X-M) Net Exports (add exports minus Imports)
This is US’ trade surplus/deficit.
Inflation
(prices going up). LOSS OF PURCHASING POWER.
CPI (Consumer Price Index):
The government watches and compares the prices for goods and services the average urban consumer uses.
PCE Price Inflator.
Reported monthly by the Bureau of Labor Statistics (BLS).
Deflation
Prices going down.
Disinflation:
Prices going up, but not as much as the month before.
Demand pull
more customers want a product and it pulls the prices up. This normally happens when the economy is good and everybody has job and everybody has money. Too much money running after too few goods.
Cost push
this is where the cost to make a product is passed on to the consumer. The most common causes are increase in wages and increase gas prices. The business owner still wants to make a profit, so they have to raise their prices.
COLA – Cost of Living Adjustment
Many companies and the government often increase wages to the same percentage as the growth in inflation. This helps employee avoid loss of purchasing power.
If all companies increase their wages for their employees to match the rate of inflation of goods and services, what is the likely result in the following year?
Inflation!!! Wages go up, retail price of products go up, then employers raise wages again and then raise retail prices again, and so forth and so on…. Wage-price Spiral
How much have prices gone up in the past year for most products? Use the CPI (Consumer Price Index) to find the current inflation rate (Your answer will be from 0-100%) (Click here.) Is the answer good or bad for the economy?
1.17% is the current rate of inflation as measured by the CPI
Given Personal Income (PI), how do you arrive at Disposable Income (DI)?
PI (Personal Income)
-​Personal Taxes

DI (Disposable Income)
Given National Income (NI), how do you arrive at Personal Income (PI)?
NI (National Income)
+​Transfer Payments (Unless told otherwise, assume this is a receipt to the consumer…e.g. social security checks)
-​Social Security Contributions
-​Interest Payments
+​Dividends Paid (Profits Distributed)

PI (Personal Income)
Given Net National Product (NNP), how do you calculate National Income (NI)?
NNP (Net National Product)
-​Indirect Business Taxes

NI (National Income)
Given GDP, how do you calculate GNP?
GDP (Gross Domestic Product)
+​Income received from Foreigners for Factors (Resources) sold
-​Income paid to Foreigners for Factors (Resources) bought

GNP (Gross National Product)
Given GDP, how do you calculate NDP?
GDP (Gross Domestic Product)
- ​Depreciation (Consumption of Fixed Capital)

NDP (Net Domestic Product)
What is the formula for GDP using the “income approach”?
+Compensation of Employees
+Other taxes less subsidies on ​production
+Consumption of fixed capital (Deprn)
+Net Operating Surplus
+Net Indirect Taxes
What is the formula for GDP using the “expenditures approach”?
+C ​Households consumption
+G​Government expenditures
+Ig ​Business investment in plant/equipment + residential construction + change in inventory levels
+X ​Exports
–M ​Imports
Describe the Circular Flow of Economic Activity
See picture
During periods of hyperinflation, what is the most likely response of consumers?
Spend money as fast as possible.
If nominal interest rates remain the same and the inflation rate falls, real interest rates (increase/decrease).
increase
_________ inflation is due to increases in production costs.
Cost-push Inflation
Suppose the Organization of Petroleum Exporting Countries (OPEC) sharply increased the price of oil, which triggered higher inflation rates in the United States.  This type of inflation is called _____.
Cost-push Inflation
Unemployment that is of a short duration to allow time to find a new job is _______.
Frictional Unemployment
A person who voluntarily quits his/her job in New York and expects to get a similar job in Los Angeles is an example of what type of unemployment?
Frictional Unemployment
Short periods of unemployment needed to match jobs and job seekers are called ____________.
Frictional Unemployment
What type of unemployment caused by people voluntarily quitting work in order to seek more attractive employment?
Frictional Unemployment
Unemployment caused by a mismatch between worker skills and employer requirements.
Structural Unemployment
What type of unemployment caused an engineer permanently laid off due to advances in technology?
Structural Unemployment
Unemployment that is caused by a mismatch of the demand for workers with certain skills and the skills of unemployed workers.
Structural Unemployment
Sam is a musician who is out of work because electronic equipment replaced live musicians. This is an example of _____ unemployment.
Structural Unemployment
Cyclical unemployment is caused by _______.
Declines in Real GDP
Eric lost his job because a recession caused his employer's sales to fall. This is an example of ______ unemployment.
Cyclical Unemployment
Sally lost her job when her company went out of business because of a recession. This is an example of ______ unemployment.
Cyclical Unemployment
A decrease in aggregate demand and the subsequent cutbacks in production lead to _____ unemployment.
Cyclical Unemployment
The increase in unemployment associated with a recession is called ____________.
Cyclical Unemployment
The level of unemployment consisting of frictional and structural unemployment is called _______.
natural rate of unemployment
The natural rate of unemployment occurs if there is no _________ unemployment.
Cyclical Unemployment
The natural rate of unemployment occurs if there is no _________ unemployment
Cyclical Unemployment
Full employment is the situation in which the economy operates at an unemployment rate equal to the sum of ______.
Frictional, Structural, and Seasonal
The GDP gap is the difference between ______ and ______.
full employment real GDP & actual real GDP
Which population group typically has the highest unemployment rate?
Teenagers
_______ is an increase in the general price level of products.
Inflation
In which decade was inflation in the United States the highest?
1980
What is the most commonly used measurement for changes in price levels (inflation/deflation)?
Consumer Price Index (CPI)
Help or Hurt by Unanticipated Inflation?

Tina Eckstrom and her husband bought a deferred annuity that started paying them $700 a month in retirement benefits (fixed income payment).
They are hurt by inflation because the purchasing power of their income will decrease.
Help or Hurt by Unanticipated Inflation?

Landlords
Assuming a fixed rental contract, landlords are hurt by inflation because they are being paid in “cheaper” dollars.
Help or Hurt by Unanticipated Inflation?

Government
As the world’s largest debtor, the US Government is helped because they pay back their debt with “cheaper” dollars.
Help or Hurt by Unanticipated Inflation?

Borrowers
Borrowers are helped because they pay back their debt with “cheaper” dollars.
Help or Hurt by Unanticipated Inflation?

Savers
If the money is in a fixed rate savings account (e.g. CD), they hurt because they are losing purchasing power; however, if the money is in a variable rate account, the saver is likely to be unaffected since the bank would increase the interest rate on both lending and saving vehicles.
During a period of problematic inflation or suspected future inflation, what impact would this have on lending?
Lending would decrease because banks would have to increase the interest rate to make up for the potential future losses in purchasing power of repaid funds.

From the Federal Reserve’s perspective, this is how it should be. In times of inflation, the FED decreases the money supply with the intent of decreasing lending and thus spending.
Union contracts with built-in cost-of-living adjustments and home mortgages that vary with the rate of inflation are:
a. inappropriate ways of combating inflation.
b. examples of bracket creep.
c. means of implementing fiscal policy.
d. steps that can be taken to decrease the adverse impacts of inflation.
D
What is a year chosen as a reference for prices in all other years?
Base Year