Unit 4 Economics Flashcards

These flashcards cover key concepts and definitions related to GDP, national income, unemployment, inflation, poverty, income distribution, macroeconomic concepts, and economic growth and productivity.

GDP

The total value of all final goods and services produced within a country in a given year.

Formula for GDP

GDP = C + I + G + (X - M)

Components of GDP

C = Consumption, I = Investment, G = Government Spending, X = Exports, M = Imports

Nominal GDP

Measured in current prices.

Real GDP

Adjusted for inflation using base year prices.

Real GDP per capita

Real GDP divided by the population; shows average economic output per person.

What doesn't GDP measure?

Nonmarket activities, underground economy, and quality of life.

Examples of nonmarket activities

Home childcare, home repairs, volunteer work.

Underground economy

Illegal or unreported market activities (e.g., drug trade, cash-only work to avoid taxes).

Net National Product (NNP)

GDP minus depreciation of capital goods.

National Income (NI)

Total income earned from producing goods and services.

Personal Income (PI)

Total income received from all sources, including transfer payments.

Disposable Personal Income (DPI)

PI minus taxes; income available for spending or saving.

Four stages of the business cycle

Expansion, Peak, Contraction, Trough.

Expansion

GDP rises, unemployment falls, consumer spending increases.

Peak

GDP is at its highest, inflation rises, resources are scarce.

Contraction

GDP falls, unemployment rises; can lead to recession.

Trough

GDP and employment stop declining; recovery begins.

Three major economic indicators

Real GDP, Unemployment Rate, Inflation Rate.

Increase in Real GDP

Indicates economic growth.

Full employment in the U.S.

4-6% unemployment.

Ideal inflation rate

About 2%.

Unemployment rate formula

(Unemployed ÷ Labor Force) × 100.

Four types of unemployment

Frictional, Seasonal, Structural, Cyclical.

Frictional Unemployment example

College grad looking for a job.

Seasonal Unemployment example

Fruit picker out of work in winter.

Structural Unemployment example

Worker replaced by a robot.

Cyclical Unemployment example

Factory layoff during a recession.

Discouraged worker

Someone who gave up looking for a job after long-term unemployment.

Inflation

A rise in the overall price level.

Hyperinflation

Inflation over 50% per month.

Deflation

A general decline in prices.

Demand-pull inflation

Caused by too much demand for too few goods.

Cost-push inflation

Caused by rising input costs.

Wage-price spiral

Wages rise -> Prices rise -> Wages rise again.

CPI measures

Consumer price changes.

PPI measures

Prices received by producers.

Poverty

Not having enough income to meet basic needs.

Poverty threshold

The minimum income needed to survive.

Poverty rate in the U.S.

About 2-3%.

Factors affecting poverty

Education, discrimination, demographic trends, low-wage jobs.

Income distribution

How income is shared across a population.

Lorenz Curve

A graph that shows income inequality.

Welfare

Government aid programs for low-income people.

Food stamps (SNAP)

A program that helps low-income people buy food.

Aggregate Demand (AD)

Total demand in the economy.

Aggregate Supply (AS)

Total supply in the economy.

Macroeconomic Equilibrium

When AD = AS.

Increase in AD or AS

Leads to economic Expansion.

Decrease in AD or AS

Leads to Contraction or stagnation.

External shocks

Events like wars, disasters, or embargoes that affect the economy.

Leading indicator

Predicts future trends.

Lagging indicator

Confirms what has already happened.

Coincident indicator

Reflects the current state of the economy.

Four factors of economic growth

Human resources, capital, technology, natural resources.

Multifactor productivity

Output compared to combined labor and capital inputs.

Increases in productivity

Result from quality of life, education, health, innovation, efficient financial markets, and lower energy costs.