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18 Cards in this Set
- Front
- Back
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Explain why 3 methods of calculating GDP produce the same estimate of GDP. |
Total Value of/Aggregate spending - every final good and service produced in the economy is either purchased by someone or added to inventories. Inventories are counted as spending by firms. Aggregate Spending/Total Factor Income - all spending that is channeled to firms to pay for purchases of domestically produced final goods and services is revenue for firms. |
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What are the various sectors to which firms make sales? What are the various ways in which households are linked with other sectors of the economy? |
Firms make sales to other firms, households, the government, and rest of the world. Households/Firms - through the sale of factors of production, through purchases of final goods/services Household/Government - payment of taxes, receipt of transfers, and lending of funds to the government via the financial markets |
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Nominal GDP Formula Real GDP Formula |
Nom GDP = Quantity X Price Real GDP = Quantity X Price of Base Year |
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GDP Deflator |
(Nom GDP / Real GDP) X 100 |
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Inflation Rate |
((GDP Def 2007 - GDP Def 2006)/GDP Def 206) X 100 |
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Why would a growth using nominal GDP be misguided? |
nominal GDP doesn't account for the interest rate change. therefore the magnitude of the change is underestimated. |
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Market Basket |
a set of consumer purchases of goods and services (Q x P + Q x P + Q x P = Market basket |
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What's Included/Excluded in GDP |
Include - Produced Here and Sold Here Excluded - Sale of Foreign Goods, Used Goods, Illegal Goods, Transfer Payments, Intermediate Goods |
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Price Index |
[(Market Basket year)/(Market Basket base year)] X 100 |
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Types of Unemployment |
Frictional - Unemployment due to the time workers spend in job search Structural - More people searching for jobs Cyclical - deviation of the actual rate of unemployment due to downturn in business cycle Natural - Frictional + Structural |
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Calculate GDP |
GPD = C + I + G + (X-M) Private Consumption + gross investment + government investment + government spending + (exports - imports) |
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Rule of 70 |
# years for variable to double = 70/annual growth rate |
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Real GDP per Capita |
Inflation adjusted GDP per person Real GDP/Population |
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Multiplier |
1/(1-MPC) |
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Marginal Propensity to Consume |
Change Consumer Spending/Change in Disposable Income |
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Consumption Function |
C = a + b (y) C = fixed income + MPC(income) |
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Short Run Aggregate Supply Curve |
Upward sloping because nominal wages are sticky in the long run |
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Long Run Aggregate Supply Curve |
Vertical because it shows potential output |
