Studied by 5 people
Circular Flow
the pattern in which goods, services and resources flow in the marketplace
GDP
the total market value of all final NEW goods and services produced annually in an economy
Nominal GDP
GDP measured in current prices
Limitations of GDP
Nonmarket Activities
Underground Economy
Negative externalities
Quality of life
Labor Force
the total number of workers, including both the employed and the unemployed
Unemployment Rate
the percentage of the labor force that is unemployed
Labor Force Participation Rate
the percentage of the adult population that is in the labor force
Types of Unemployment
frictional structural cyclical
Frictional Unemployment
*A type of unemployment caused by workers voluntarily changing jobs and temporary layoffs *unemployed workers between jobs.
Structural Unemployment
*unemployment resulting from industrial reorganization, *typically caused by technological change
limitations of unemployment rate
does not give a good indication of how many people are discouraged(not looking for work) or underemployed.
Natural Rate of Unemployment
frictional plus structural unemployment *typically 5- 7%
Calculate Unemployment Rate
unemployed/labor force x 100
Calculate Labor Force
employed + unemployed
Calculate Labor Force Participation Rate
labor force/adult population x 100
CPI (Consumer Price Index)
a measure of the overall cost of the goods and services bought by a typical consumer
Inflation
A general increase in prices
Deflation
A situation in which prices are declining
Disinflation
a reduction in the rate of inflation
Real Variables
variables measured in physical units
Calculate Inflation Rate
CPI this year - CPI last year / CPI last year x 100
Limitations of CPI as a measure of inflation
*Does not factor in change in quality or substitutes
Calculate CPI
(cost of basket in current year/cost of basket in base year) x 100
Real GDP formula
Nominal GDP/GDP Deflator x 100
GDP formula
C+I+G+(X-M)
GDP deflator formula
Nominal GDP/Real GDP x 100
Not included in GDP
Intermediate goods
Household production
Non-market (illegal) activities
Used goods and services
Real GDP per capita
real GDP divided by the total population
circular flow leakages
1)Savings 2)Imports
Phases of the business cycle
expansion-> peak-> contraction-> trough->recovery
Business Cycle Graph
a period of macroeconomic expansion followed by a period of contraction
recessionary gap
when aggregate output is below potential output
inflationary gap
when aggregate output is above potential output
Note 
Flashcard (187)