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Macroeconomics, Exam 2
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Economics
jasso
ch 5,6,7,8
ECON-211
University/Undergrad
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146 Terms
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1
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national income accounting
the techniques used to measure the overall production of the economy and other related variables for the nation as a whole
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Price
Measure of value of a good or service
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GDP
Final output dollar value
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Intermediate goods
goods used in the production of final goods
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GDP measurements
Exclude intermediate goods
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GDP
Output produced within a nation's borders
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Gdp
Makes it easier to compare economic activity globally
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GDP per capita
Used by a measure of a country's standard of living, is gdp divided by population
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Nonmarket activities
GDP measurements exclude goods/services produced but not sold
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How much money in underground market?
$2 trillion
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Gdp
Important use: measure how production changes every year
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Real GDP
Nominal GDP/ Price Index
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Nominal GDP
the value of final goods and services evaluated at current-year prices
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GDP equals
National income
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Real GDP\=
(Nominal GDP/Price Index) x 100
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GDP
Consumption + investments + government expenditures + exports + imports
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statistical discrepancy
Makes up for nonmarket income
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Personal income
pretax income received by households
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disposable income
Personal income left after taking out taxes
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unemployment & inflation
Two major economic problems
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Unemployed person
No job & is actively seeking one
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Loss of output
Cost of unemployment
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Labor force
the total number of workers, including both the employed and the unemployed
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Not labor force
Not working and not looking for work
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Labor force shot up
From 1960-90 bc of women joining
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Population growth and immigration
why does the labor force grow?
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How much does the labor force grow by every year?
2 million workers
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increases production possibilities
labor force growth
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unemployment
idled resources- the economy operates inside the production possibilities curve and is inefficient
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okun's law
1 percent more unemployment results in 2 percent decrease in gdp
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unemployment rate formula
number of unemployed/ labor force
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unemployment is higher for
men than women
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unemployment is higher for
black and Hispanics more than whites
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unemployment is higher for
less educated than highly educated
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unemployment is higher for
teens than older
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duration of unemployment
lowers when the economy is growing and rises when economy stagnates/declines\--- the trend is the same as unemployment rate
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reasons for unemplohment
1! lost job
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2- reentrants
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3-new entrants
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4- left job
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dicouraged workers
former job seekers who have given up and aren't looking for a job anymore
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underemployed
people who want full time work in their field but can only find part time or work below their capacity\--- still count as employed
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phantom employed
pretend to look for a job to receive public assistance but don't actually want one\-- still count as unemployed
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human cost of unemployment
loss of income, loss of confidence, social stress, lost lives (suicide)
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Full employment
not the same as no unemployment
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full employment
the lowest unemployment rate compatible with price stability; zero cyclical unemployment--ranges between 4-6%
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seasonal unemployment
seasonal work ends\-- lawncare, etc--normal
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frictional unemployment
brief period of unemployment experienced by people moving between jobs or into the labor market\-- normal
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structural unemployment
caused by a mismatch between skills or location of job seekers and requirements/ location of available jobs\-- normal
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cyclical unemployment
caused by decline in economic activity--not normal
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inflation flashpoint
rate of output at which inflationary pressures intensify\-- at or below 4% unemployment
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changes in structural unemployment
come from changes in society
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inflation
increase in average level of prices
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Consumer Price Index (CPI)
a measure of the overall cost of the goods and services bought by a typical consumer
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market mechanism
causes prices of individual goods and services to rise or fall
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relative price
price of one good compared to price of other good,, buyers switch from one good to another when their relative prices diverge
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inflation
is not a market function
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effects of inflation
some prices rise and some fall
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real income
income in constant dollars, adjusted for inflation
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nominal income
income in current dollars
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effect of inflation
can be seen in difference between nominal income and real income
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inflation causes
a redistribution of wealth, seen in price changes, income changes, & wealth changes
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price effects due to inflation
if you buy products whose prices rise faster\-- you're worse off. if you sell faster\-- you're better off
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income effects due to inflation
nominal income rising slower than inflation- you're worse off
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income rising faster than inflation\-- you're better off
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wealth effects due to inflation
assets declining in real value- worse off
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assets increasing in real value- better off
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money illusion
using nominal dollars rather than real dollars to gauge changes in one's income or wealth
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macro consequences of inflation
uncertainty, speculation, bracket creep
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uncertainty
not knowing prices of goods in the future makes purchasing & production decisions much harder
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speculation
decisions shift from standard economic activity to betting on future prices of goods
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bracket creep
in a progressive tax system, when nominal incomes rise, the taxpayer gets pushed into a higher tax bracket
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deflation
a decrease in the general level of prices
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redistributive effects\-- opposite of those for inflation
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GDP deflator
most accurate.
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changes in prices of all goods and services are included, used to adjust nominal gdp to real gdp
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before the 1930s...
people thought that a market driven economy was inherently stable (laissez faire)
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classical economics
the economy "self-adjusts" to any deviations from its long-term growth.
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wages and prices are flexible
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say's law
supply creates its own demand
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all that is produced will be sold, all who want employment will be hired at some point
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macrofailure
self adjustment mechanism did not work- great depression
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John Maynard Keynes
analyzed great depression- concluded that self-adjusted didn't happen bc of insufficient demand
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90
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suggested that the way out of depression was to buy more output
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& employ more people
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& provide more income transfers
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& make more money available
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For an overheated economy, Keynes proposed
-Higher taxes
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-Gov spending reductions
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-Reduce availability of money
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business cycle
peak, trough, contraction, recovery
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peak
gdp maximizes
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contraction
gdp declines
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trough
gdp minimizes
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