Economics Oct 3rd formative

GDP (Gross Domestic Product)

Total dollar value of all goods and services produced by an economy

Inflation Rate

Change in the price of goods

Unemployment Rate

Percentage of people who are actively seeking employment but are unsuccesful

Three Economic Goals

Economic Growth, Price stability, and Full employment

Economic Growth

Long Term, goal is 3%

Price Stability (inflation Rate)

Goal is 2% inflation rate per year (low and predictable)

Full employment

Goal is between 4-6% unemployment rate

Business Cycle

Expansion, Peal, Contraction, Recession, Trough, Recovery, Expansion

Expansion

consecutive positive growth of GDP

Peak

Last quarter of positive growth

Contraction

Period of negative growth of GDP

Recession

2+ quarters of contraction

Trough

Final quarter of negative growth

recovery

Period immediately after a trough

GDP formula

C+I+Nx+G

C

consumption

I

investment

Nx

Net Exports (exports-imports)

G

Government spending

Consumption factors that shift AD

Consumer wealth, consumer expectations, disposable income taxes

Investment factors that shift AD

Interest rates, expected returns

Nx

National Income Abroad, exchange rates

Aggregate Supply

Volume of goods/services produces at a given overall price level (public and private)

Short Run (constant)

levels of capital, stock and technology, potential GDP, resource prices

Short Run (Variable)

Quantity of labor

Long Term (constant)

nothing

Long Run (variable)

everything

SRAS curve (Short Run Aggregate Supply)(now)

input prices, Productivity (technology, human capital), Legislation (taxes, subsidies)

LRAS (long run aggregate Supply)(Potential)

Productivity (tech, Human Capital)