Macroeconomics test #2

GDP (gross domestic product)

the total market value of all goods and services produced in one year

Real GDP

nominal GDP / price index

Nominal GDP

the market value of all final goods and services produced in a year

Multiplier effect

causes gains in total output to be greater than the change in spending that caused it

National Accounting Equation

GDP = C + I + G + (X - M)

Economic Growth

increasing the economy’s productive capacity over time

Productivity

average output or real output per unit of input (productivity of labor = real output / hours of work)

Business Cycle

the ups (prosperity) and downs (recession) of a market economy

Unemployment

the percentage of the labor force that is not employed ((# unemployed / # labor force) X 100)

Inflation

a rise in the general level of prices (((current CPI - base CPI)/ base CPI) X 100)

Multiplier

(1/MPS) or (1/(1 minus MPC))

Expected Rate of Return

the anticipated increase in profit obtained by investing in capital

Net Exports

exports minus imports

Disposable Income

income that is available to you for saving or spending

Price Index

price of the most recent market basket of products divided by the price of the same market basket in 1982-1984

National Income

the total value of all income in a nation during a given period (compensation of employees, rents, interest, proprietors´ income, corporate profits, taxes on production and imports)

Consumption of Fixed Capital (depreciation)

an estimate of the amount of capital consumed in producing the gdp

Net Domestic Product

GDP minus depreciation

Personal Income

includes all income received whether earned or unearned, and it differs from national income

Gross domestic Investment (I)

all final purchases of machinery, equipment, and tools by business enterprises; all construction; changes in inventories

Net Private Domestic Investment

gross domestic investment minus depreciationd

Personal Consumption Expenditures (C)

all expenditures by households on durable consumer goods, nondurable consumer goods, and consumer expenditures for services

Expenditure Approach

C + I + G + X = GDP

Income Approach

National Income + Net foreign factor income + statistical discrepancy + consumption of fixed capital = GDP

Government Purchases (G)

expenditures for goods and services that the gov consumes in providing public services, and expenditures for social capital such as schools and highways

Types of Unemployment

Cyclical, Frictional, Structural

Cyclical Unemployment

Caused by the recession phase of the business cycle

Frictional Unemployment

Those searching for jobs or waiting to take jobs soon

Structural Unemployment

When certain skill become obsolete or geographic distribution of jobs changes

Real GDP per Capita

divide real GDP by the population

Demand-pull Inflation

spending increases faster than production

Cost-push Inflation

rising prices that raise the average cost

full employment

does not mean zero unemployment, (= frictional + structural unemployment)

C

Consumption (personal consumption expenditures)

I

Investment (Gross domestic Investment)

G

Government

X

Net Exports

Rule of 70 (years to double)

70/annual percentage rate of growth

Average Propensity to Consume (APC)

consumption / income

Average Propensity to Save (APS)

saving / income

Marginal Propensity to Consume (MPC)

change in consumption / change in income

Marginal Propensity to Save (MPS)

change in savings / change in income

CPI

Consumer Price Index