macro unit 2 equations + vocab

expenditures approach

add up all the spending on final goods and services

income approach

add up all the income that resulted from selling all final goods and services

calculate GDP expenditure approach

Consumption + Investment + Government spending + Net exports (exports - Imports)

Calculate nominal GDP

price of current year x Quantity of current year

calculate real GDP

price of base year x quantity of current year

GDP Deflator

a measure of the overall level of prices

calculate GDP deflator

Nominal GDP/Real GDP * 100

inflation rate using GDP deflator

GDP deflator current year - GDP deflator base year/GDP deflator base year * 100

labor force

unemployed + employed

unemployment rate calc

number unemployed/labor force * 100

labor force participation rate

labor force/population 16 yrs or older * 100

frictional unemployment

unemployment due to workers looking for a new job

structural unemployment

unemployment caused by workers whose skills are now obsolete

cyclical unemployment

unemployment caused by the ups and downs on the business cycle

natural rate of unemployment (NRU)

frictional unemployment + structural unemployment

what % of NRU is full employment?

4% - 6%

actual rate of unemployment

NRU + Cyclical unemployment

who is helped by inflation?

Borrowers benefit

who is hurt by inflation?

Lenders lose

cost of living adjustment (COLA)

employers can include raises in their employee’s salary that account for the increased inflation

CPI calc

cost of basket in current year/cost of basket in base year * 100

inflation rate using CPI

CPI current year - CPI last year/CPI last year * 100

Consumer price index (CPI)

the measure of average changes over time in prices paid by consumers for a fixed market basket of goods and services

real interest rate

nominal interest rate - inflation rate

nominal interest rate

real interest rate + inflation rate