Studied by 0 people
Gross Domestic Product
The total dollar value of all final goods and services produced within the borders of a country during a specific time period, usually one year.
final good
a new good that undergoes no further processing before it is sold to consumers (Counted in GDP)
intermediate good
good purchased for resale or for use in producing another good (not counted in GDP)
circular flow
a model of the movements of goods, services, resources, and money in an economy
product market
market where producers offer goods and services for sale to households, other businesses, and the government
resource market
a market in which households sell and firms buy resources (land, labor, capital, entrepreneurship)
consumption
spending by households on goods and services, with the exception of purchases of new housing
investment
business spending on capital equipment, inventories, and structures and household purchases of new housing
net exports
spending on domestically produced goods by foreigners (exports) minus spending on foreign goods by domestic residents (imports)
Expenditure approach
calculating GDP by adding up spending on all final goods & services produced in the nation during the year (Consumer Spending (C) + Investment (I) + Government Spending (G) + Net Exports (Xn)
GDP per capita
total value of goods and services produced in a year divided by the population
Real GDP
GDP after adjustments for inflation
Nominal GDP
the GDP measured in terms of the price level at the time of measurement (unadjusted for inflation)
Inflation
an increase in the overall level of prices in the economy
demand pull inflation
increases in the price level resulting from an excess of demand over output
cost push inflation
Increases in the price level due to a rise in the cost of production.
real interest
The rate of interest adjusted for inflation. (Nominal interest rate - inflation rate)
nominal interest rate
the stated interest rate on a loan
unemployment rate
the percentage of people in the civilian labor force who are not working but are looking for jobs
structural unemployment
unemployment that occurs when workers skills do not match the jobs that are available
frictional unemployment
unemployment caused by workers changing jobs or waiting to go to new ones
cyclical unemployment
unemployment that rises during economic downturns and falls when the economy improves
natural rate of unemployment
The "normal" unemployment rate due to frictional and structural conditions in labor markets. It is the unemployment rate that occurs even when the economy is operating at a maximum sustainable rate of output.
Okun's law
for every 1% of unemployment above the natural rate a negative GDP gap of 2% occurs
Business Cycle
recurring fluctuations in economic activity consisting of recession and recovery and growth and decline
Expansion
a period of economic growth as measured by a rise in real GDP and fall in the unemployment rate
Peak
the height of an economic expansion, when real GDP stops rising and the unemployment rate is at its natural rate
Contraction
A period of economic decline marked by falling real GDP and rising unemployment
recession
two or more consecutive quarters of decline in Real GDP
trough
the lowest point in an economic contraction, when real GDP stops falling and unemployment rates are high
recovery
the phase in which unemployment begins to decrease, demand for goods and services increases, and GDP begins to rise again
(𝑅𝑒𝑎𝑙 𝐺𝐷𝑃)/𝑃𝑜𝑝𝑢𝑙𝑎𝑡𝑖𝑜𝑛
how to calculate: 𝑃𝑒𝑟 𝐶𝑎𝑝𝑖𝑡𝑎 𝐺𝐷𝑃
unemployment rate = # of unemployment/ labor force X 100
How to calculate unemployment rate
= P2 -P1/ P1 * 100 OR Y2 - Y1/ Y1 *100
rate of inflation calculation
CPI (Consumer Price Index)
market basket of goods and services; used for payments made of half of population
Quantity Theory of Money Equation
MV=PY
where M=$, V=Velocity, P=Price level, Y=quantity/output
The Wage-Price Spiral
A perpetual Process
Workers demand raises b/s prices too high >> businesses increase wages but to attain profit they increase prices >> workers demand higher wages etc.
COLA
Cost Of Living Adjustment. gov programs, safety net to keep up w/ inflation
Hyperinflation
extreme out of control inflation. Increasing to a point where measuring inflation is pointless
