Economics Review Flashcards

Flashcards for Economics Lecture Review

Labor Force

Employed + Unemployed

Unemployment Rate

(Unemployed / Labor Force) × 100

Labor Force Participation Rate

(Labor Force / Working Age Population) × 100

Frictional Unemployment

Temporary, job-matching delay

Structural Unemployment

Skills mismatch

Cyclical Unemployment

Due to economic downturns

Discouraged Workers

Want to work but are not actively seeking

Full Employment

Natural Rate (Frictional + Structural)

Inflation

Sustained rise in the overall price level

CPI, PPI, GDP Deflator

Measures of price changes

Nominal vs Real Interest Rate

Real = Nominal − Inflation

GDP

Market value of all final goods/services produced within a country

Real vs Nominal GDP

Adjusts for price changes

Business Cycle

Alternating periods of economic expansion and recession

Value-Added Approach

Adds value at each stage of production

Labor Productivity

Output per hour worked

Potential GDP

Output at full employment

Financial System

Facilitates saving, investment, and risk sharing

Market for Loanable Funds

Supply = Savers, Demand = Borrowers (firms/govt)

Crowding Out

Government borrowing reduces private investment

Multiplier Effect

small spending changes → big GDP changes

Aggregate Demand (AD)

Downward due to Wealth, Interest Rate, and Trade Effects

Short-Run Aggregate Supply (SRAS)

Upward-sloping due to sticky wages/prices

Long-Run Aggregate Supply (LRAS)

Vertical at potential GDP

Money: Medium of Exchange

Function of money allowing transactions.

Money: Store of Value

Function of money that holds its value over time

Money: Unit of Account

Function of money as a standard numerical monetary unit of measurement of market value of goods, services, and other transactions.

Money: Standard of Deferred Payment

Function of money acceptable way to settle a debt

M1

Currency + checking deposits

M2

M1 + savings accounts + money market funds

Federal Reserve Tools

Open Market Operations, Discount Rate, Reserve Requirements

Money Multiplier

1 / Reserve Ratio

Quantity Theory of Money

MV = PY

Federal Funds Rate

Primary tool of Monetary Policy

Expansionary Monetary Policy

↓ interest rates → ↑ C, I, NX → ↑ AD

Contractionary Monetary Policy

↑ interest rates → ↓ C, I, NX → ↓ AD

Expansionary Fiscal Policy

↑ G, ↓ T → ↑ AD

Contractionary Fiscal Policy

↓ G, ↑ T → ↓ AD

Automatic Stabilizers

Unemployment insurance, progressive taxes

Discretionary Fiscal Policy

Deliberate changes by the government

ΔY

Multiplier × ΔA

Real GDP

(Nominal GDP / GDP Deflator) × 100

GDP Deflator

(Nominal GDP / Real GDP) × 100

Real GDP per Capita

Real GDP / Population

Inflation Rate

((CPI₂ − CPI₁) / CPI₁) × 100

CPI

(Cost of Market Basket Current / Cost in Base Year) × 100

Real Value

(Nominal Value / CPI) × 100

Real Interest Rate

Nominal Rate − Inflation Rate

Unemployment Rate

(Unemployed / Labor Force) × 100

LF Participation Rate

(Labor Force / Working Age Population) × 100

Private Saving

Y + TR - C - T

Public Saving

T - G - TR

Total Saving

Sprivate + Spublic = I