Untitled Flashcards Set

GDP (Gross Domestic Product)

• GDP measures the total value of all final goods and services produced within a country in a given period.

GDP Formula

• GDP = Consumer Spending + Business Investments + Government Spending + Net Exports (Exports - Imports)

Unemployment Rate

• Measures the percentage of the labor force that is unemployed and actively seeking work.

Inflation

• The general increase in prices and the decline in purchasing power over time.

Recession

• A period of economic downturn when output and employment are falling.

Expansion

• A period of economic upturn when output and employment are rising.

Business Cycle Peak

• The highest point before the economy starts to decline.

Business Cycle Trough

• The lowest point before the economy starts to recover.

Long-Run Economic Growth

• The sustained upward trend in the economy’s output over time.

Deflation

• A decrease in the general price levels of goods and services.

Inflation Discourages People From…

• Holding onto cash because its value decreases over time.

Deflation Has the Opposite Problem Because…

• The value of money increases, leading to reduced spending.

Price Stability

• When inflation and deflation are kept to a minimum to maintain economic stability.

Open Economy

• An economy that engages in international trade.

Trade Deficit

• When a country imports more than it exports.

Trade Surplus

• When a country exports more than it imports.

National Income and Product Accounts (NIPA)

• A system used to measure economic activity in a country.

Circular Flow Diagram

• A model showing the flow of money, goods, and services in an economy.

Stock

• A share of ownership in a company.

Bond

• A loan made to a company or government with the promise of repayment with interest.

Government Transfers

• Payments by the government to individuals without receiving a good or service in return (e.g., Social Security).

Disposable Income Formula

• Disposable Income = Income + Government Transfers - Taxes

Private Savings Formula

• Private Savings = Disposable Income - Consumer Spending

Final Goods and Services

• Goods and services sold to the final consumer.

Intermediate Goods and Services

• Goods used to produce final goods and services.

Aggregate Spending

• The total spending in an economy on domestically produced goods and services.

Value Added of a Product

• The increase in value of a product at each stage of production.

Major Component of GDP

• Consumer spending makes up the majority of GDP.

Included in GDP

• Domestically produced final goods and services, including capital goods, new construction, and inventory changes.

Not Included in GDP

• Intermediate goods, used goods, financial assets (stocks/bonds), foreign-produced goods, and informal services.

Real GDP

• GDP adjusted for inflation.

Aggregate Output

• The total quantity of goods and services produced in an economy.

Nominal GDP

• GDP measured in current prices without adjusting for inflation.

Chained Dollars

• A method of calculating real GDP using average growth rates to adjust for inflation.

GDP Per Capita Formula

• GDP Per Capita = GDP / Population

Real GDP Per Capita

• Average real GDP per person, used to compare economic growth between countries.

How to Calculate Real GDP

• Use the base year prices to measure GDP across different years.

Who Is Hurt During a Recession?

• Workers lose jobs, businesses close, and overall spending decreases.

Who Benefits During an Expansion?

• Businesses grow, employment rises, and consumer spending increases.

Definition of Employment

• Being actively working for pay.

Definition of Unemployment

• Actively seeking work but not currently employed.

Labor Force Formula

• Labor Force = Employed + Unemployed

Labor Force Participation Rate Formula

• (Labor Force / Population Age 16 and Older) * 100

Unemployment Rate Formula

• (Number of Unemployed Workers / Labor Force) * 100

Discouraged Workers

• People who have given up looking for work.

Marginally Attached Workers

• People who recently looked for work but are not currently searching.

Underemployed Workers

• Part-time workers who want full-time jobs or overqualified workers in lower-skilled jobs.

Jobless Recovery

• A period of economic growth without job creation.

Types of Unemployment:

Frictional Unemployment

• Temporary unemployment during job transitions.

Structural Unemployment

• Job loss due to changing industries or technological advancements.

Cyclical Unemployment

• Unemployment caused by economic downturns.

Labor Unions

• Organizations that negotiate for workers’ rights and wages.

Efficiency Wages

• Wages set above market level to increase worker productivity.

Natural Rate of Unemployment Formula

• Natural Rate = Frictional Unemployment + Structural Unemployment

Cyclical Unemployment Formula

• Cyclical Unemployment = Total Unemployment - Natural Unemployment

Causes of Changes in Natural Unemployment Rate

• Labor force characteristics, labor market institutions, and government policies.

Inflation Rate Formula

• ((Price Level in Year 2 - Price Level in Year 1) / Price Level in Year 1) * 100

Shoe Leather Costs

• Costs of extra transactions due to inflation.

Menu Costs

• Costs of changing listed prices due to inflation.

Unit of Account Costs

• Uncertainty in economic calculations due to inflation.

Nominal Interest Rate

• Interest rate before adjusting for inflation.

Real Interest Rate Formula

• Real Interest Rate = Nominal Interest Rate - Inflation Rate

Price Index Formula

• (Cost of Market Basket in Given Year / Cost of Market Basket in Base Year) * 100

Consumer Price Index (CPI)

• Measures inflation by tracking the price of consumer goods.

Producer Price Index (PPI)

• Measures inflation at the producer level.

GDP Deflator Formula

• 100 * (Nominal GDP / Real GDP)

Rule of 70 Formula

• Time to Double = 70 / Annual Growth Rate

Factors Affecting Economic Growth

• Physical capital, human capital, and technological progress.

Aggregate Production Function

• Shows how input changes affect output.

Why Does Aggregate production level Have Diminishing Returns?

• Each additional input increases output by a smaller amount.

Why is Aggregate Demand Downward Sloping?

• Due to the wealth effect and interest rate effect.

Aggregate Demand Shifters (SEWFM)

• S: Size of stock of physical capital

• E: Consumer expectations

• W: Consumer wealth

• F: Fiscal policy

• M: Monetary policy

Aggregate Supply Shifters

• Nominal wages, commodity prices, productivity.

Long-Run Aggregate Supply

• Represents full employment output.

• Technological advancements: Increases efficiency and shifts the curve to the right.