ECON100 Test 1: Supply&Demand, GDP, Inflation, Unemployment

Equilibrium

A market state where quantity demanded equals quantity supplied, resulting in no shortage or surplus.

Shortage

A market situation occurring when the price is below equilibrium, causing quantity demanded to exceed quantity supplied.

Surplus

A market situation occurring when the price is above equilibrium, causing quantity supplied to exceed quantity demanded.

Demand Shift

A change in the quantity demanded at every price level, caused by a non-price determinant, shifting the entire demand curve.

Movement Along a Demand Curve

A change in the quantity demanded resulting solely from a change in the good's own price.

Normal Good

A good for which demand increases when consumer income rises, and decreases when consumer income falls.

Inferior Good

A good for which demand decreases when consumer income rises, and increases when consumer income falls.

Substitute Goods

Goods that can be used in place of one another; an increase in the price of one leads to an increase in the demand for the other.

Complementary Goods

Goods that are used together; an increase in the price of one leads to a decrease in the demand for the other.

Gross Domestic Product (GDP)

The total market value of all final goods and services produced within a country's borders in a specific time period.

ONLY FINAL GOODS ARE COUNTED, GOODS ARE COUNTED IN THE YEAR THEY’RE PRODUCED

Expenditure GDP Formula

GDP = C + I + G + (X - M) where C is consumption, I is investment, G is government spending, and (X - M) is net exports (exports minus imports).

Investment (GDP Component)

Spending on capital equipment, inventories, structures, and new residential housing; it does not include financial investments like stocks and bonds.

GDP Per Capita

total gdp/population, used as a basic measure of a country's average standard of living.

Unemployment Rate Formula

Unemployment Rate = (Unemployed / Labor Force) x 100, measuring the percentage of the labor force that is jobless and actively looking for work.

Labor-Force Participation Rate Formula

LFPR = (Labor Force / Working-Age Population) x 100, measuring the percentage of the working-age population that is either employed or actively seeking work.

Discouraged Workers

Individuals who want a job but have stopped looking because they believe no positions are available; they are excluded from the labor force and the official unemployment rate.

Frictional Unemployment

Temporary unemployment that occurs when workers are moving between jobs, changing careers, or entering the labor force for the first time- takes time to match workers with the right openings

Structural Unemployment

Long-term unemployment that occurs when there is a mismatch between the skills workers possess and the skills required for available jobs- more workers than jobs avalibale

Cyclical Unemployment

Unemployment directly related to business cycle fluctuations, increasing during economic recessions and decreasing during expansions.

Natural Rate of Unemployment

The normal level of unemployment around which the unemployment rate fluctuates, consisting of frictional and structural unemployment but zero cyclical unemployment(~4%)

Inflation

A sustained increase in the overall price level of goods and services in an economy over time, which reduces purchasing power.

Deflation

A sustained decrease in the overall price level of goods and services in an economy, increasing the purchasing power of money.

Consumer Price Index (CPI)

• BLS tracks the price of a fixed basket of goods and services purchased by a typical consumer

• quantities in the basket stay fixed, only trhe prices change from year to year

Purchasing Power

The value of money measured by the quantity of goods and services that a single unit of currency can buy.

Stable Inflation

A low, predictable rate of inflation that allows businesses and consumers to make long-term financial plans with certainty, generally preferred for economic stability(approx 2%)

Purchasing Power CPI Forumla

Value in year B dollars=CPI of year b/CPI of year A

Demand curve shifters

Tastes and prefrences
Related goods
Income
Buyers(#of)
Expectations

Related goods

Substitue goods and complement goods

Supply curve shifters

events affecting production

Intermediate goods

used in the production of another good

final good

sold to the end user

recession

two consecutive decling quarters of gdp

depression

severe recession

Bearu of Labor Statistics(BLS) Categories for Adults(over 16)

Employed, unemployed, not in the labor force

Employed

has a job

Unemployed

1. without a job

2. available to work

3. actively looking for work in the past 4 weeks

Not in the labor force

not working and not looking(retierees, stay at home parents, ect)

Labor force

employed or unemployed

Adult population

labor force+not in the labor force

Underemployed workers

working jobs below their skiill level, but are still counted as employed

Why unemployment rate isn’t perfect

• Discouraged workers

• underemployed workers

• dishonestly

Does the unemployment rate fall to 0%?

No

Unemployment distribution factors

• Age

• race/ethnicity

• educaiton

• location

Is unemployment normally short or long

short

the US tends to have ____ e,mployment than most other countries

lower

during a recession, unemployment is. ___

high

during economic growth, unemployment tends to be ___

lower

inflation rate

average percentage increase in prices, reflects change in cost of living

inflation rate formula from year a to year b

((CPI NEW-CPI OLD)/CPI OLD)x100

nomial intrest rate

the stated rate

real intrest rate(adjusted for inflation)

nomial intrest rate-inflation rate

inflation premium

the portion of the nomial rate that compensates for inflation

IP=N-R

price above equlibrium

surplus, price falls

price below equilibrium

shortage, price rises