Principles of Economics Exam 4

What is Gross Domestic Product?

GDP is the market value of the final goods and services produced within a country in a given time period.

How many parts does GDP have?

Four

What are the four parts of GDP?

Market Value, Final Goods and Services, Produced Within a Country, and In a Given Time Period.

When does Standard of Living rise?

when income rises and we can afford to buy more goods and services.

What is Aggregate Income?

the total income received by households.

What is consumption expenditure?

The total payment for goods bought by a household

What are Investments?

the purchase of new plants, equipment, and buildings and additions to inventories.

What is government expenditure?

When governments buy goods and services from firms

How do you calculate the value of net exports?

By subtracting the value of imports from the value of exports

What is the formula for GDP?

Consumption Expenditure + Investments + Government Expenditure + Net Exports

Are GDP and Aggregate Expenditure the same thing?

Yes

What is real GDP?

the value of final goods and services produced in a given year when valued at the prices of a reference base year.

What is Nominal GDP?

the value of final goods and services produced within a given year when valued at the prices of that year.

What is Domestic product?

the production within a country.

What is National product?

the value of goods and services produced anywhere in the world by the residents of a nation.

What is Gross National Product?

GDP plus net income from factors of production owned in other countries.

What does Gross mean?

before subtracting the depreciation of capital.

What does Net mean?

after subtracting the depreciation of capital.

What is Depreciation?

the decrease in the value of a firms capital that results from wear and tear and obsolence. 

What is gross investment?

the total amount spent both buying new capital and replacing depreciated capital 

What are Net investments?

the amount by which the value of capital increases

How do you calculate Net investments?

Gross Investments minus depreciation

What is Gross Profit?

a firms profit before subtracting depreciation.

How do you calculate Net Domestic Income?

wages + rent + income + profit

How do you calculate Net Domestic Income at market price?

Net Domestic Income + Indirect tax less subsidies

What is the Income Approach?

Depreciation + Net Domestic Income at market value

What is the working age population?

the total number of people aged 16 and over who are not in jail, the hospital, or some other form of institutional care.

What are the two parts of the working age population?

those in the labor force and those not in the labor force

What are the two parts of the labor force?

those that are employed and those that are unemployed

What does Employed mean?

anyone with a full or part time job.

What does Unemployed mean?

someone available to work but is a part of three categories.

What are the three categories of unemployment?

those without work but have made specific efforts to find a job in the last four weeks, those waiting to be called back to a job from which he or she has been laid off, those waiting to start a new job within 30 days

What does it mean to not be a part of the labor force?

Anyone of working age not employed or unemployed is considered not a part of the labor force

What are the three indicators of the state of the labor market?

The unemployment rate, the employment to population ratio, the labor force participation rate

What is the unemployment rate?

the percentage of people in the labor force who are unemployed.

How do you calculate the unemployment rate?

Number of people unemployed/the labor force times 100

What is the employment to population ratio?

the percentage of people working age who have jobs

How do you calculate the employment to population ratio?

number of employed/working age population times 100

What is the labor force participation rate?

the percentage of the working age population who are members of the labor force.

How do you calculate the labor force participation rate?

Labor force/working age population times 100

Are underemployed workers a part of the labor force?

No

What is a marginally attached workers?

a person who is currently not working or available for work but has indicated that he or she wants and is looking for a job or has looked for a job in the recent past

What is a discouraged worker?

a marginally attached worker who has stopped looking for a job due to repeated failure to find one.

What is frictional unemployment?

the unemployment that arises from both firms and workers searching for the best available match.

What is structural unemployment?

the unemployment that arises when changes in technology or international competition change the skills needed to perform jobs or change the locations of jobs forcing workers to be retrained or relocate to find work

What is cyclical unemployment?

the higher-than-normal unemployment at a business cycle trough and the lower-than-normal unemployment at a business cycle peak is

What is Natural Unemployment?

the unemployment that arises from frictions and structural change when there is no cyclical unemployment.

What is Full employment?

a situation in which the unemployment rate equals the natural employment rate.

What is the Output Gap?

the gap between real GDP and potential GDP

When the economy is at full employment what is the output gap?

Zero

When the unemployment rate is less than natural unemployment is the output gap positive or negative?

Positive

When the unemployment rate is greater than natural unemployment is the output gap positive or negative?

negative

What is the price level?

the average level of prices and the value of money.

What is inflation?

a persistently rising price level

What is deflation?

a persistently falling price level

What does unexpected inflation or deflation do?

redistribute income and wealth, lowers real GDP and employment, diverts resources from production

What is hyperinflation?

an inflation rate of 50 percent a month or higher that grinds the economy to a halt and causes society to collapse

What is the Consumer Pirce Index?

a measure of the average of prices paid by urban consumers for a fixed basket of consumer goods and services.

How do you calculate CPI?

Cost of CPI basket in the current year/cost of CPI basket in the base year time 100

How do you calculate inflation rate?

CPI in current year minus CPI last year/CPI last year times 100

How do you calculate PCEPI?

Nominal Consumption/Real Consumption time 100

How do you calculate GDP deflator?

Nominal GDP/Real GDP time 100

What is Economic Growth?

the expansion of production possibilities

What is the Growth Rate?

the annual percentage change of a variable

What is Real GDP per capita/person?

the real GDP divided by the population

What is Rule of 70?

the number of years it takes for the level of any variable to double approximately 70 divided by the annual percentage growth rate of the variable.

What is the Aggregate Production Function?

a relationship that tells us how Real GDP changes as the quantity of labor changes when all other influence’s on production remain the same

What is Real Wage Rate?

the money wage rate divided by the price level

What is Labor productivity?

real GDP divided by aggregate labor hours

What is the Classical Growth Theory?

the view that the growth of real GDP per person is temporary and that when it rises above the subsistence level, a population explosion brings it back to the subsistence level.

What is the Neoclassical Growth Theory?

the proposition that real GDP per person grows because technological changes indue saving and investment that make capital per hour of labor grow

What is the New Growth Theory?

real GDP per person grows because of the choices people make in the pursuit of profit and that growth will persist indefinitely.

What is scarcity?

the inability to get everything we want

what is an incentive?

a reward or penalty that encourages or discourages an action

what is economics?

the social science that studies the choices that individuals, businesses, governments and entire societies make as they cope with scarcity and the incentives that influence those choices

what is microeconomics?

the study of the choices that individuals and businesses make and the way these choices interact and are influenced by governments

what is macroeconomics?

the study of the performance of the national economy and the global economy

what are goods and services?

objects that people value and produce to satisfy wants