SDSU Econ 101 (Modules 5-7): Test 2 Cullivan

Nominal Gross Domestic Product (GDP)

A measure of GDP in which the quantities produced are valued at current-year prices. Nominal GDP measures the current dollar value of production

Intermediate Good

Goods that are used to build or make another product that will be subsequently sold

Final good and services

Goods and services that are sold to the end user and are not used to produce another product for subsequent sale

Gross Investment (I)

The dollar value of all new capital purchased in an economy during a given time period. Business fixed, Residential investment, and inventory investment.

Government Purchases (G)

All final goods purchased by federal;, state, and local governments - such a tanks, police cars, fire engines, and office supplies - during a given time period, as well as all final services purchased from labor resources - such as airports security personnel, police officers, and teachers

Imports (M)

Goods, services, or resources produced abroad and sold domestically

Exports (X)

Goods, services, or resources produced domestically and sold abroad

Net exports (NX)

The difference between exports imports:

(NX=X-M)

Nominal GDP

C+I+G+NX= ?

Consumer Durables

Good that have an average useful life of 3 years or more

Consumer nondurables

Goods that have an average useful life of less than 3 years

Services

Outputs, often intangible, of the direct activities of another person

Transfer Payment

A payment made by the government that does not require an exchange of economic activity in return. Transfer payments often take the form of payments to household.

Consumption

Durable Goods + Nondurable Goods + Services = ?

Investment

Formation of new productive capital or the expansion of inventories within an economy. Either when firms buy goods and services that will enhance productivity and increase output or increase their inventories of the goods they sell

Business Fixed Investment

Purchases by firms of new capital goods, such as offices, factories, tools, and machinery

residential investment

Purchases of new homes; includes home improvements

inventory investment

Changes in inventories from one year to the next. Positive if firms produce more than they sell; negative if the sell more than they produce

Gross investment (I)

The dollar value of all new capital purchased (as investment) and the expansion of inventories in an economy during a given time period.

Net Investment (I net)

The difference between gross investment and depreciation; represents the net change in the capital stock during a year

Net Investment

I - Depreciation= ?

Expenditures Approach

Approach to calculating nominal GDP that sums four categories of expenditures on final goods and services in a country in a given time period, typically 1 year.

Rent

payments made to land resources

wages

payments made to land resources

interest

fee for the use of money over time

National Income

rent+wages+interest+profits and losses = ?

GDP

National income+indirect business taxes+depreciation+net foreign factor income

Real GDP per Capita

Real GDP/Population = ?

GDP price index

based on all the goods and services that are counted as part of gross domestic product

Nominal GDPt/Real GDPt x100 =?

Standard of Living

level of overall well-being enjoyed by an individual, group, or society.

Economic Growth

increase in real gross domestic product or real gross domestic product per capita

Percentage Change

New-Old/Old x100% = ?

Production possibilites frontier (PPF)

graph that shows the possible combinations of two different goods or services that can be produced with fixed resources and technology.

law of increasing opportunity costs

principle in economics which holds that since some resources are better suited to producing one good or service than another, as the production of a good or service increases, the opportunity cost of each additional unit rises

Rule of 72

used to estimate, given a constant rate of growth, how long it will take for a value to double in size, where the time to double is calculated as 72 divided by the growth rate

Time to Double (in years) = 72/growth rate

business cycle

short-term fluctuations experiences in the economy due to changes in levels of economic activity

expansion

time of recovery and economic growth, when the real output level grows toward an economy's full capacity and employment trends toward its full level.

peak

maximum point of economic activity, characterized by full, or near-full, employment and real output that is at, or close to, and economy's capacity.

recession

A decline in real output for at least 2 consecutive quarters

trough

lowest point of economic activity in the business cycle, characterized by employment and real output being at their lowest level.

labor force

individuals 16 years of age and older who are not institutionalized and who either are employed or are unemployed but actively seeking employment

employed

number of people in the economy who hold a full- or part-time position.

unemployed

number of people in the economy who have not had a job for at least a week but have actively searched for employment in the past 4 weeks

frictional unemployment

unemployment resulting from workers searching and waiting for jobs

structural unemployment

unemployment occurring when the skills that some workers have to offer don't match the skills needed by the firms in the economy

Cyclical unemployment

unemployment resulting from fluctuations in the business cycle

season unemployment

type of frictional unemployment resulting from workers searching and waiting for jobs due to seasonal fluctuations in demand for certain types of workers

discouraged worker

someone who wants to work but is not actively looking for a job

Unemployment rate

Unemployed/employed+unemployed x100 = ?

Labor force participation rate (LFPR)

labor force/population over the age of 16 x100 = ?

Natural rate of unemployment

frictional unemployment rate+structural unemployment rate/size of labor force x100 = ?

Inflation

general increase in price of goods and services

Consumer Price Index (CPI)

economic indicator used to measure over time the average price of a market basket of good and services purchased by the typical consumer

*value of a market basket in year t/value of same market basket in base year x100 = ?

Inflation Rate

CPI Year (t) - CPI Year (t-1)/CPI Year (t-1) x100 = ?

deflation

situation in which the inflation rate is negative

disinflation

situation in which the inflation rate is positive but declining over time

hyperinflation

situation in which the inflation rate is positive and greater than 50% per month

Real income

nominal income/consumer price index (hundredths) = ?

percentage change in real income

percentage change in nominal income - percentage change in prices = ?