Benchmark Sections 2.1-2.3

What is the number one indicator of economic health?

A country’s GDP!

Define GDP (IN EXACT WORDS)

The market value of all final legal output produced in a country in one year.

What is the formula for GDP? What to the letters mean?

C + I + G + [X - M]

C = Consumption

I = Investment

G = Government Spending

X = Exports

M = Imports

The brackets are the Net Exports

What are the 8 things that don’t count towards GDP? What do they mean?

ISPPUING

1. Intermediate Goods

2. Second Hand Sales

3. Purely Financial Transactions

4. Public Transfer Payment

5. Unreported “Legal” Business Activity

6. Illegal Business Activity

7. Non-Market Transactions

8. GNP

1. Components of the final good

2. Used goods, no current production

3. Stocks, CDs, etc

4. Welfare, social security,

5. Legal Transactions unreported to IRS

6. Also goes unrecorded obviously

7. Work in your household or volunteer work

8. If US corporations produce goods overseas

Define Inflation

A general rise in prices

What does CPI stand for and what does it do?

CPI stands for Consumer Price Index and it measures the cost of a fixed basket of consumer goods and services and compares the basket cost to a base period.

How do you calculate CPI?

(Current year / Base year) x 100

*gives you how prices increased

How do you calculate inflation rate?

(New CPI - Old CPI / Old CPI) x 100

Does inflation cause low or high unemployment?

Low unemployment

Does deflation cause low or high unemployment?

High unemployment

What inflation rate is Creeping?

1%- Under 4% annually

What inflation rate is Galloping?

100-300%

What inflation rate is Hyper?

500%

What is the FED’s target for inflation rate?

2%

What is Demand-pull inflation?

Demand exceeds supply creating shortages

What is Cost-push inflation?

Costs put onto consumers in the form of higher prices, supply decreases, cost of goods/services increase.

Define Wage-price Spiral?

Cost of living argument, keep “even” with inflation, saving erodes, fixed incomes sufer.

Who is hurt by inflation?

Fixed income receivers, savers, and creditors.

Who is less affected by inflation?

Flexible income receivers, debtors, and government benefits big time.

Define Unemployment

You currently do not have a job and you are actively seeking employment within the last 30 days.

Formula for Unemployment Rate?

(Number of Unemployed / Number of Labor Force) x 100

What percent of unemployment is required to declare full employment?

5% unemployment or below

Frictional Unemployment

Between Jobs

Structural Unemployment

Lack the necessary skills for the job

Technological Unemployment

Automation/Technology has taken your job

Cyclical Unemployment

Unemployment due to Recession

Seasonal Unemployment

Unemployment after a businesses busy time of year has ended