Economics Key Concepts: Resources, GDP, Inflation, and Unemployment

Economics

The study of choice under conditions of scarcity.

· Factors of Production/Resources/Inputs

Land

Labor

Capital

Human Capital

Costs

What you give up to obtain what you want (rationality and the pursuit of utility)

Author of Comparative advantage theory

David Ricardo

Falsifiability

Theory or hypothesis must be structured in such a way that it can be tested and potentially proven false by observation or experiment.

Author of Falsifiability

Karl Popper

GDP Definition

The Measure of Final Value Added of all Goods and Services Produced within a Country, at Current Prices, over a Given Period of Time (Annually)

Final goods & services

Made for the ultimate consumer (finished product)

Expenditure formula

Y = C + I + G + NX

Real GDP

Nominal GDP adjusted to eliminate changes in price from year to year

Nominal GDP

Figured in terms of existing prices in the year goods & services are produced

Real GDP Formula

Real GDP = (Nominal GDP/GDP deflator) x 100

GPD Deflator

Average of prices of all final goods and services produced in the economy. Value of 100 in the base year

Rate of Economic Growth Formula

change in real GDP/original GDP x 100

Consumer Price Index (CPI)

Weighted basket of goods (food, housing, clothes, transportation, etc.)

Producer Price Index (PPI)

Measures changes in prices for producers (firms)

Consumer Price Index (CPI) Formula

Outlay in Given Year / Outlay in Base Year * 100

Inflation Rate Calculation

(CPI New year - CPI Old year) / CPI last year x 100

Unemployment Rate

(Number of people Unemployed / Labor Force) * 100

Labor Force Participation Rate

(Labor Force / Civilian Population) * 100

Types of Unemployment

Frictional

Structural

Cyclical

Seasonal

Full Employment

Natural Rate of Unemployment

Multiplier

A way to express cumulative impacts of economic occurrences.

Economic Impact Formula

Injections * (1/Rate of Leakage)

Current Spending

Consumption,

Spent in the goods market,

Firms receive revenues

Deferred Spending

Savings,

Enters the financial sector (banks),

Interest returns to households,

Firms obtain loans

Market Flow (Rivers)

Reflects current value added in the economy

Market Stocks (Lakes)

Reflect previous value stored and not spent,

Dams in circular flow (stocks parked in on or more boxes),

Ex. money in your wallet