AS

Unit 2 Quiz

Circular Flow Model

Vocab:

  1. Private Sector - part of economy that is run by individuals and businesses
  2. Public Sector - part of economy controlled by gov
  3. Factor Payments - payment for factors of production (rent, wages, interest, & profit)
  4. Subsidies - gov payments to businesses

Economic Goals

  1. Promote Economic Growth
  2. Limit Unemployment
  3. Keep Prices Stable (Limit Inflation)

GDP: dollar value of all final goods and services produced within a country’s borders in one year

NOT INCLUDED in GDP:

  1. Intermediate goods (used to make final goods like tires for a car)

  2. Nonproduction Transactions

    1. Financial Transactions (stocks, bonds, real estate)
    2. Used Goods

  3. Non-Market/Illegal Activities (things made at home, untaxed labor like baby sitting, drug dealing)

Calculating GDP:

  • Expenditures Approach (C+I+G+Xn) - Consumer spending, Investment, Gov spending, Net exports
  • Income Approach (W+I+R+P) - Wages, Income, Rent, Profit
  • both approaches should give same number!

GDP per capita: more representative of standard of living, shows how much on average each person produces

Nominal GDP : dollar value of GDP that year

Real GDP : Nominal GDP gets adjusted for inflation to accurately compare with GDP’s from diff years

Employed: have a job

Unemployed: no job, but ACTIVELY LOOKING

Working age pop: 16+

Labor force: employed+unemployed

Not in labor force: ppl not looking for job, under 16 or retired, students, homemakers, off grid/unreported income

3 Types of unemployment:

  1. Frictional: ppl who choose to be unemployed for a bit to look for new jobs/ weigh options (recent grads)
  2. Structural: ppl who lose job bc skills are obsolete, need new training and skills (blockbuster clerk)
  3. Cyclical: ppl who lose job bc of change in business (getting laid off)