Studied by 26 peopleGDP, Inflation, Unemployment, Business Cycle
3 macroeconomic goals of all countries
promote economic growth
limit unemployment
keep prices stable
factor payments
payments for the factors of production
rent, wages, interest, and profit
GDP
dollar value of all final goods and services produced within a country in one year
percent change in GDP formula
year 2-year1/year 1 ×100
transactions not included in GDP
intermediate goods, nonproduction transaction, non market transactions, illegal transactions
GDP per capita
GDP divided by population, it identifies on average how many products each person makes
best way to measure standard of living
national income formula
W+R+i+Pr
w= wages
r= rent
i= interest
Pr= profit
expenditures approach formula
C+I+G+Xn
C= consumer spending
I= business investment
G= government spending
Xn= net exports
3 components of consumer spending
durable goods (washing machine)
nondurable goods (food and clothes)
services (dental work and repairs)
Inventories
goods produced and held in storage to sell later on
unemployment
people who are actively looking for a job but not working
unemployment rate
the percent of people in a labor force who want a job but aren’t working
unemployment rate formula
#unemployed/# in labor force x 100
labor force requirements
at least 16
able and willing to work
not institutionalized (in jail or hospital)
not in military, full time school, or retirement
3 types of unemployment
frictional
structural
cyclical
frictional unemployment
temporary unemployment or being in between jobs
individuals are qualified workers with transferable skills
ex. high school/college graduates looking for jobs
structural unemployment
changes in the labor force make skills obsolete
these workers do not have transferable skills and these jobs will never come back
ex. machinery replacing workers
cyclical unemployment
unemployment caused by a recession, demands for goods and services falls so labor force falls too
Natural Rate of Unemployment (NRU)
frictional plus structural unemployment
unemployment that exists when an economy is healthy and growing
Non-accelerating inflation rate of unemployment (NAIRU)
specific level of unemployment that does not cause inflation to increase
people not included in unemployment
discouraged workers (people who are no longer looking for a job)
underemployed workers
someone who wants more hours but can’t get them
still considered employed
inflation
rising general level of prices, it reduces the “purchasing power” of money
deflation
decrease in the general level of prices, or negative inflation rate
disinflatiion
prices increasing at slower rates
price indicies
index #’s assigned to each year that show how prices have changed relative to a specific year
consumer price index (CPI)
most commonly used measurement of inflation rate
CPI formula
price of market basket/price of MB in base year x 100
labor force participation rate formula
civilian labor force total/civilian non-institutionalized population x 100
rate if inflation change formula/percent change formula
new-old/old x 100
nominal GDP
GDP not adjusted for inflation
real GDP
GDP adjusted for inflation
people who are hurt by unanticipated inflation
lenders
savers
people who are helped by unanticipated inflation
borrowers
businesses where price of product increases faster than the cost of the resource
costs of inflation
menu costs (costs money to change listed prices)
shoe leather costs (cost of transactions increase)
unit of account costs (money doesn’t reliably measure the value of goods/services)
GDP deflator
the measure of the prices of all goods produced
only goods and services produced domestically
GDP deflator formula
nominal GDP/real GDP x 100
nominal GDP formula
GDP deflator x real GDP/100
real GDP formula
nominal GDP/GDP deflator x 100
Note
Flashcard