Eco 202 first exam

GDP

 total value of all final goods and services produced in the economy during a given year.

Factors Into GDP

• Goods and services are summed up using their market prices.

• Underground economy is not reflected in GDP.

• Final goods: Intended for end users.

• Intermediate goods: Inputs used to produce final goods.

C =

Consumer Spending

I =

Investment Spending

G =

Government Spending

X - IM

Net Exports

Consumer Spending

• Final goods/services for personal use (e.g., durable goods, nondurable goods, services).

• Accounts for 65% of U.S. GDP.

Investment Spending

• Purchases of new capital goods, including inventory investment.

• Excludes asset reallocation (e.g., buying used houses, trucks).

Government Spending

• Includes purchases like military equipment and highways.

• Excludes transfer payments (e.g., Social Security).

Net Exports (X - IM)

• Exports: Foreign spending on domestic goods.

• Imports: Domestic spending on foreign goods.

Nominal GDP

The total monetary value of all final goods and services produced in a country in a given period, measured using current prices.

Real GDP

The total monetary value of all final goods and services produced in a country in a given period, adjusted for inflation.

Price Indices

• GDP Deflator and Consumer Price Index (CPI)

CPI

An index that measures the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.

GDP Deflator

A measure of the level of prices of all new, domestically produced, final goods and services in an economy.

CPI Calculation =

• (Cost of Basket in Given Year / Cost of Basket in Base Year) × 100

Inflation Rate

• (Price Index Year 2 - Price Index Year 1) / Price Index Year 1

Nominal Wage

• Dollar amount in contracts.

Real Wage

• Adjusted for inflation.

Real Wage Calculation =

• (Nominal Wage / CPI) × 100

Nominal Rate

Does not account for inflation

Real Rate

Adjusted for inflation.

Real Rate Calculation =

• Nominal Rate - Inflation Rate

Employed

•  People with jobs (full or part-time).

Unemployed

• Jobless people actively seeking work in the past 4 weeks.

Labor Force

• Employed + Unemployed.

Labor Force Participation Rate:

Labor Force / Working Age Population.

Frictional

Temporary, job search.

Structural

More job seekers than available jobs.

Cyclical

Due to economic downturns.

Natural Rate of Unemployment

• Frictional + Structural unemployment.

• Full employment occurs when actual unemployment equals natural unemployment.