ECO 202: Exam 1

Gross Domestic Product

The market value of all final goods and services produced in a country during a period of time, typically one year.

Market Value

price*quantity

Final goods/services

Value of intermediate goods 'built into' final goods - don't want to double count!

Total production

Total Income = Total Spending = GDP

Consumption

Makes up the largest portion of GDP, including services, nondurable goods, and durable goods.

Investment

Firm spending on new factories, machinery, additions to inventories, and spending on new homes.

Government Purchases

Federal, state, local spending on things like teacher salaries, public schools, highways, and aircraft carriers.

Transfer Payments

Payments that don't represent immediate production of new goods/services.

Net Exports

Exports - Imports; the only component that can be negative.

Real GDP

Measures current output at base year prices.

Nominal GDP

Measured in current year dollars.

GDP Deflator

A measure of the price level derived from real GDP and nominal GDP.

Labor Force

Number of Employed + Unemployed.

Adult Working Age Population

Subset of every single person in the country, consisting of people 16 and older; noninstitutionalized.

Employed

People that worked at least 1+ hours in reference week or were temporarily away from their jobs.

Unemployed

Someone that is NOT currently working, but IS available for work, and has actively looked for work WITHIN THE PAST MONTH.

Not in the Labor Force

Adult Working Population - Labor Force.

Discouraged Worker

Someone who would like a job but has given up looking for a job because they feel like there are no jobs out there for them.

Frictional Unemployment

Related to the job search, typically short-term in nature.

Structural Unemployment

Related to a mismatch in skills, tends to be long-term.

Cyclical Unemployment

Caused by a business cycle recession.

Natural Rate of Unemployment

The unemployment rate when the economy is at full employment, consensus is between 5 and 5.5 percent.

Consumer Price Index (CPI)

A measure of the average change over time in the prices a typical urban family of four pays for the goods and services they buy.

Inflation

The percentage change in the CPI.

Substitution Bias

Consumers may change their purchasing habits away from goods that have increased in price.

Increase in Quality Bias

Difficult to separate improvement in quality from increase in price.

New Product Bias

The basket of goods changes only every 10 years, causing delays in including new goods.

Outlet Bias

The CPI uses the full retail price, but people may buy from discount stores or online.

Producer Price Index

Reflects the cost of a basket of goods purchased by producers.

Real Value

A value that is adjusted for inflation.

Nominal Value

A value that is measured in current year dollars.

Nominal Interest Rate

Quoted interest rate for loans, not adjusted for inflation.

Real Interest Rate

Nominal rate adjusted for inflation effects.

Anticipated Inflation

Predictable inflation impacting economic decisions.

Menu Costs

Costs incurred by firms to change prices.

Unanticipated Inflation

Unexpected inflation complicating borrowing and lending.

Real GDP per Capita

Production per person adjusted for price changes.

Economic Growth

Increase in productivity raising living standards.

Growth Rate

Percentage change in economic output over time.

Rule of 70

Estimates years for doubling based on growth rate.

Financial System

Markets and intermediaries facilitating funding for firms.

Risk Sharing

Distributing investments to reduce individual risk.

Liquidity

Ease of converting investments to cash.

Information

Prices reflect future revenue expectations.

Total Savings (S)

Sum of private and public savings.

Private Savings

Household income not spent on consumption.

Public Savings

Government revenue not spent on expenditures.

Balanced Budget

Government revenue equals government spending.

Budget Deficit

Government spending exceeds government revenue.

Budget Surplus

Government revenue exceeds government spending.

Expansion

Period when real GDP is rising.

Recession

Period when real GDP is falling.

Phillips Curve

Inverse relationship between unemployment and inflation.

Labor Productivity

Output produced per worker or hour worked.

Capital

Physical and human resources enhancing productivity.

Technological Change

Improvements enabling more efficient production methods.

Property Rights

Legal rights ensuring market functionality and innovation.

Economic Catchup

Poor countries growing faster than rich countries.

COVID-19 Economic Impact

Significant GDP decline and unprecedented unemployment spikes.