unit 2 study cards

Product Market

where goods and services are sold

businesses in the product market

goods and serviced are produced by them so they can supply it to other people

Households/individuals in the product market

they demand goods and services rather than supplying them

resourcee (factor) market

where resources ( land labor capital enterpreneurial skill) are sold

businesses in the resource market

resources are sold to them because they demand resources

households/individuals in the resource market

they supply resources to be sold to other people

businesses.. what do they supply/demand

supply products and demand resources

individuals .. what do they supply/demand

demand products and supply resources

private sector

part of the economy run by individuals and businesses

public sector

part of the economy controlled by the government

factor payments

payment for factors of production : rent (land), wages (labor), interest (financial capital), profit (entrepreneur)

transfer payments

govt money payments but they do not recieve anything in return (welfare, social secruity, unemployment)

subsidies

government transfer payments to businesses

leakages

money is leaving circulation or stops flowing around

additions

money is being added to circulation

savings

leakage, money is not spent so not circulating

imports

leakage, money is sent to foreign country

investments

addition, money is being put into a business

exports

addition, foreigners buy our goods and send us money

government role in resource market

supply government expenditutres, demand resources

government role in product market

demand goods and services, supply government expenditures

government

demands taxes from businesses/firms and individuals/households

calculating price index/gdp deflator

nominal gdp/real gdp (100)

calulationg nominal gdp

current production) (current prices)

calculating real gdp

nominal gdp / price index (100)

gdp growth rate

new gdp - old gdp / old gdp (100)

inflation rate

new price index - old price index / old price index (100)

gdp per capita

real or nominal gdp total / population that year

consumer price index

current market basket / base year market basket (100)

base year basket

current market basket / cpi (100)

depending on information given, real wages income can be

nominal income/cpi (100)

disinflation

temporary slowing of the pace of price inflation

galloping inflation

prices rising quickly ( 10%+ or higher a year )

helped by inflation

borrowers/debtors, firms/businesses, flexible income earners

real interest rates

nominal interest rate - expected inflation

nominal interest rates

real interest rate + expected inflation

quantity theory of money

(m)(v)=(p)(y)

demand pull inflation

demand increases, supply not changing.

caused by changes in spending beyond production capacity

cost push inflation

caused by increased costs for factors of production

price increase, decrease in supply

peak

temporary maximum in real gdp

unemployment rate LOW or at natural rate of unemployment

inflation rate HIGH

contraction / recession

decline in real gdp accompanied by increase in unemployment and typically decreasinf inflation rate

economic decline must be atleast 6 months long

trough

bottom of business cycle - gdp is at the temporary maximum low

unemployment rate is probably high and inflation is probably low

recovery/ expansion

where economy is returning to full employment , gdp is rising but inflation rate is increasing

prosperity

expansion beyond the previous peak

labor force

employed + unemployed

labor force participation rate

labor force/population (100)

employed

16 years or older

working average 1 hour / 2 weeks

underemployed

working but not making enough to live off of or working a job in which theyre over qualified

unemployed

people 16 years or older that do not have a job but have actively searched for a job within the last 2 weeks

unemployment rate

unemployed/labor force (100)

frictional

temporary,voluntary, in between jobs, changing jobs, newly entering the workforce.

good for individuals and society

structural

declining industries, lack skills/education, replaced, mismatches in skills and jobs available

good for society - pushes advancement/education, increased skill levels

cyclical

business cycle downturn/ recession, layoffs due to not needing labor (lack of demand slows business)

bad for society and indiviuals

GDP NOT counted

foreign produced goods, no double counting or multiple counting, intermediate goods, used/second hand goods, transfer payments, underground/black market/ non market activtiy.

HURT by inflation

fixed income recivers, savers, creditors (lenders)

expediture method

consumption, gross private investment, government spending, net exports (exports-imports=net exports)

C+Ig+G+(X-M)

Income Method COUNTED

wages for use of labor resources , rents for use of land resources, interest for use of financial capital resources, profits for use of entrepreneurial skill.

labor force participation rate

labor force/adult population (100)

unemployment rate

unemployed/labor force (100)

natural rate of unemployment

FRICTIONAL + STRUCTURAL unemployment