macroeconomics unit 2

GDP

business cycles

happen continuously, alternating ups and downs in economic activity

NBER

national bearu of economic research, officially dates US business cycles

recession

begins after 2 consecutive quarters of negative growth

annualized rate

applying the rate from one quarter to the whole year (projection/prediction)

double dip recession

economy seems to be doing better, but then goes back down

NIPA

national income and product accounts, measures economic importance of countries by comparison

Simon Kuznets

developed systematic approach on measuring and analyzing data, like GDP

how NIPA measures

compares data on income produced and spending amount

circular flow diagram

shows how money is spent and then respent between businesses and consumers

GDP

gross domestic product, a measure of the market value of the goods and services produced in a country in a year, location based

intermediate goods

goods not in the hands of their final user, tires that ford buys to assemble their cars

final goods

goods in the hands of their final owners

GNP

market value of the goods and services produced domestically and abroad by citizens of a country, nationality not location based

the equation for GDP

Y= C+I+G+NX

personal consumption expidentures

C in the equation, everything consumers buy, durable goods, nondurable goods, and services

gross private domestic investment (I)

residential/business investments, such as equipment, software, land, changes in inventory (what’s not sold) buildings, count goods in the year they were produced- things bought used are not counted, the most volatile

government spending (G)

federal, state and local government employee wages, purchase of goods or services from private businesses. NOT spending on social programs ex. stimulus

net exports (NX)

exports minus imports, things bought overseas count in personal consumption and as imports

trade deficit

imports is more than exports

GDP per capita

GDP is divided equally among the population of a country, still a distorted look due to outliers and income inequality

short comings of GDP

non market goods and services like housework are not counted, sale of used goods not counted, environmental quality not considered, government transfer payments not counted (tax dollars to organizations), trading of stocks and bonds isnt new production, doesn’t track informal/shadow/black/underground markets

why use GDP

higher gdp generally correlates to higher average standard of living

nominal statistic

has not been adjusted for price changes

real statistic

has been adjusted for price changes

real GDP equation

the sum of (base year price x current year quantities produced)

precent change in GDP equation

[(new# - old#) divided by old#] x 100

how long will it take anything to double equation

rule of 70, # of yrs. = 70/growth rate(%)

inflation

general rise in prices/ increase in the price level average/ when the purchasing power of a dollar decreases, measured with the market basket of the common expenses of an urban family

disinflation

reduction in the rate of inflation

deflation

price level goes down, causes recession

inflation goal for healthy economy

2%, denotes growth

CPI

consumer price index, price of retail goods, how we calculate inflation, only urban spenders commonly bought goods and services

problems with CPI

some places are more expensive to live in then others, measures only public goods, tends to overstate inflation by using fixed market cart (people change what they buy to save money), doesn’t account for substitution, quality improvements, or new products, only measure consumer out of pocket healthcare expenses

causes of inflation

demand factors- increase in demand increase in price,

supply shocks- less supply higher prices,

government policy- monetary specifically- printing money and adding it into the economy too fast means there is to much money for too few goods, which drives up inflation

corporate greed/lack of competition, price hikes because consumers have no alternative

who is affected by inflation

debtors- higher wages means real value of debt owed has gone down (if they have a fixed interest rate)\

creditors are harmed, workers with escalator clauses on their pay (like SSN) are unaffected

hyperinflation

extremely high rate of inflation, at least 100% per year, caused by government spending