Econ Test - Unit 2

3 uses of money - 1

A medium of exchange - can easily be used to buy goods and services

3 uses of money - 2

A unit of account - measures the value of all goods and services

3 uses of money - 3

A store of value - retains purchasing power over time

Commodity money

Serves as money and has intrinsic value ex: gold, silver

Fiat money

serves as money but has no other value ex: paper money, coins

2 problems with how we calculate GDP - 1

Does not account for illegal activity

2 problems with how we calculate GDP - 2

Does not account for bartering

Frictional unemployment

Temporary unemployment/in-between jobs

Structural unemployment

Changes in the labor force make some skills obsolete

Cyclical unemployment

Unemployment caused by a recession

Problems with the unemployment rate - 1

Does not count discouraged workers

Problems with the unemployment rate - 2

Underemployed workers

Problems with the unemployment rate - 3

Gender/age inequalities

What are the problems with the way we calculate CPI - 1

Substitution bias - as prices rise, consumers may choose to buy more substitutes that aren’t part of the market basket

What are the problems with the way we calculate CPI - 2

New products - may not include the newest consumer products

What are the problems with the way we calculate CPI - 3

Product quality - ignores both improvements and decreases in quality of products

What counts as natural unemployment?

The natural rate of unemployment includes frictional + structural unemployment, but NOT cyclical unemployment.