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25 Cards in this Set
- Front
- Back
Explain why prices are used (rather than quantities) in national income accounting. |
Measure output, inflation, and compare periods. |
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GDP vs GNP |
GDP are foreign companies in the US; GNP are US companies that are located internationally |
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What are included and not included in GDP? |
Included: any job that has taxes being taken out; not included: babysitting, mowing the lawn, etc. |
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Intermediate vs final goods in the calculation of GDP. |
Intermediate goods are not calculated in GDP, only final goods are. |
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How is real interest rate calculated? |
Nominal interest rate - Inflation rate |
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Define depreciation |
wearing out of old plant and equipment |
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Relate Net Domestic Product to country's potential for long term growth in output. |
NDP is the best measure of future growth. |
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Define investment as a component of GDP |
AKA business spending; the plant, machinery, and equipment that we produce; also includes net inventory changes and new residential construction. |
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Identify the two uses of of household's disposable income in GDP accounting |
Disposable income is either consumed or saved |
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Explain the equivalency between total output and total income in our economy |
GDP has two sides; expenditure (demand) and income (supply)
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Define the labor force |
People over 16 working for pay or actively looking |
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Define unemployment (relative to the unemployment rate) |
Inability of labor force to find jobs |
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How does the labor force growth impact economies outcomes? |
Can increase a country's PPC |
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Explain the major macro consequence of unemployment for an economy |
Lost output |
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Describe how unemployment is impacted during periods of economic growth or recession |
More cyclical in recessions; less in growth |
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Define inflation and deflation |
Inflation: increase in average level of prices Deflation: decrease in average level of prices |
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Apply income and price effects to an inflationary context. What is their impact on real income? |
Nominal income is constant but real income falls. |
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Define the money illusion. |
The use of nominal dollars rather than real dollar to average changes in ones income or wealth. |
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Given a population and its labor force, calculate the unemployment rate. |
Number unemployed ----------------------------------- Total civilian labor force |
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Identify the macroeconomic effects of inflation |
Market uncertainty, speculation, bracket creep |
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Describe how the Bureau of Labor Statistics constructs the CPI. |
What people buy, how prices of those items change over time |
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Characterize the GDP deflator |
Index of changes in all goods and services related to GDP, reflects price changes and market responses, usually less than CPI |
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Define cost-push and demand-pull inflation |
Cost-push: produces higher production costs Demand-pull: enables producers to raise prices |
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Describe the role of COLA |
Protect people on fixed incomes; adjust normal incomes to rate of inflation; built into social security, many contracts, and pensions |
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Describe the relationship between wages and prices over the course of recent US history |
Direct, raise first, prices go up |