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  1. What is... "Real Gross Domestic Product?"
    • Real GDP.
    • Value of final goods and services produced within the borders of a country during a year in a country.
    • (Statistic used to tell if a economy's output is growing.)
  2. What is... "Nomimal Gross Domestic Product?"
    • Nominal GDP.
    • Includes any price increases on goods/services during the years so Nominal GDP, a larger figure than Real GDP.
    • (Totals the dollar value of all goods & services produced.)
  3. What is Inflation?
    A steep rapid increase in prices during the year.
  4. What is unemployment?
    Involves people actively seeing jobs and not working at the time.
  5. What is Macroeconomics?
    Studies long run economic growth and short-term economic fluctuations.
  6. Define: Financial Investment
    • (Investment of ordinary people)
    • Purchase assets (such as: stocks, bonds, real estate) in the hope of reaping financial gain.
  7. Define: Economic Investment
    • (Expansionm of business)
    • Relates to the creation and expansion of business enterprises.
  8. Modern Economic Growth
    • Ouput per person rises.
    • A key component of modern economic growth is saving and investment/purchase of capital goods.
    • Investment is funded by savings (only possible if people postpone consumption.)
    • Trade off between current consumption and future consumption.
    • Banks take people's savings and loan it out.
    • Consumer/Business expectations have a positive or negative effect on the economy.
    • If people are optomistic about the economy, they will spend more.
    • (Some concept applies to business.)
  9. Sticky Prices
    • Prices are inflexible.
    • (Such as: Union contracts, minimum wage, fixed supplier contracts)
  10. What is "Saving?"
    Occurs when current consumption is less than curen output (or when current spending is less than current income.)
  11. What is "Investment?"
    Happens when resources are devoted to increasing future output.
  12. What is "Business Cycle?"
    Long run economic growth and short run fluctuations in output and employment.
  13. Define: Recession
    Output and living standards decline.
  14. Define: Inflation
    An increase in the overall level of prices.
  15. Define: Expectations
    Anticipations of consumer, firms, and others about future economic conditions.
  16. What are "shocks?"
    Situations in which firms are expecting one thing to happen, but then something else happened.
  17. Demand Shocks?
    Unexpected changes in the demand for goods and services.
  18. Supply Shocks?
    Unexpected changes in the supply of goods and services.
  19. Inventory?
    A store of output that has been produced but not yet sold.
  20. Flexible Prices?
    That react within seconds to changes in supply and demand.
  21. Gross Domestic Product
    Dollar ($) value of all final goods and services produced within the borders of a country during a specific time period.
  22. What is not included in the calculation of G.D.P?
    • Intermediate goods do not count.
    • Non-productive transactions - "transfer payments." (Such as: social security, welfare, veterans payments.)
    • Private transfer payments. (Such as: Gifts to kids.)
    • Stock Market Transactions
    • Second-hand sales (Goodwill)
    • Goods already counted. (Used cars, etc.)
  23. What are two ways to look at G.D.P. to calculate it?
    • Spending Approach
    • Income Approach
  24. What is the spending/expenditures (output) approach?
    • GDP viewed as the sum of all the money spent buying into it.
    • Consumption + government + gross investment + net exports
    • -or-
    • GDP + (C+G+Ig+Xn)
    • Consumption: Personal consumption of households for goods/services comprised:
    • 10% on durabel goods
    • 30% on non-durable goods
    • 60% on services
    • Government: Govt's expenditures for schools, highways, (I.E. publiv owned capital)
    • Gross Investments: (Ig) Gross Private Domestic Investment: Final purchases of business capital goods, all construction, changes in business inventions. (I.E. So, gross investment is all final priced capital goods.)
    • Net Exports: (Xn) = Exports - imports (In recent years, imports > exports, so a negative figure.)
  25. What is the income/allocations (earnings) approach?
    • Income derived or created from producing it.
    • Wages and Salaries: payment by the hour or salary (work)
    • Rents: Recvd by the households and firms
    • Interest: On savings, household, and firms
    • Proprieters Income: Owners of small businesses and retained earnings of corporations
  26. C.P.I. - Consumer Price Index
    • Price Index = $Price of market basket in year
    • _________________________
    • $Price of market basket in base year
    • (Underground economy = .08% of GDP)
  27. USA is a _________ economy.
  28. Economic Growth
    • Increase in the GDP (Gross Domestic Product) from one year to the next year.
    • (GDP growth lessens burden of scarcity.)
  29. Rule of 70
    Number of years for $dollars to double given n annual %percentage increase.
  30. Real GDP Growth
    • An increase in Gross Domestic Product occuring over some time period.
    • In USA, has risen 32% on average since 1950
  31. Real GDP per capita
    • And increase in Real GDP per capita occuring over some time period.
    • Has grown 2% since 1950.
  32. Sustained growth is _________ .
    • Stable growth in the economy with full employment.
    • Did not happen until the past 2 centuries.
  33. Modern growth is _________ .
    • In Real GDP - Characterized by institutional structures that encourage savings and development of new technologies.
    • Strong property rights, patents, effecient financial institutions and a competitive markert system has helped growth.
    • Some countries richer due to their being in the modern economic cycle.
    • To continue growth, rich countries must invest and use new technologies.
    • Poor nations can grow faster as they use cutting edge technologies by the rich countries.
  34. 4 determinants of economic growth
    • Changes in quantity and quality of natural resources.
    • Changes in human resources.
    • Change in stock of capital goods.
    • Improvements in technology and increase in deman will cause increase in total spending.
  35. What are Business Cycles?
    Alternating rises and declines in level of economic activity.
  36. Reasons for Business Shocks
    • Irregular innovations.
    • Production changes - due to resource and technology changes.
    • Monetary factors (too much or too few $$$)
    • Political events - wars, elections, financial bubbles (overlending money)
  37. US unemployment population in 3 groups...
    • Group one: 16 y/o's and people who are institutionalized (not a part of the work force)
    • Group two: Adults who are potential workers, but not employed and not seeking work.
    • Group three: the labor force - adults who are able and willing to work. (ex: employed and are seeking work)
  38. How is the unemployment rate figured?
    Unemployed x 110% divided by the Labor Force
  39. Types of Unemployment include _______ .
    • Structural: anytime job skills change - required training needed, more long-term.
    • Cyclical: caused by a recession - affects all types of jobs, most serious.
    • Frictional: by choice, people not working (between jobs/not looking,) continuing education, or quit their job for various reasons.
  40. Full Employment
    Occurs when the economy experiencing only frictional and structural unemployment.
  41. Okun's Law
    • For every 1% which the natural rate of unemployment exceeds the cyclical rate.
    • GDP declines by 2%
    • Workers in lower skilled jobs usually have higher rates of unemployment.
  42. Demand Pull Inflation
    Excess demand pulls up prices of limited output.
  43. Cost Push Inflation
    Through output and employment declining - pricing rising reasons (Ex: supply shocks: oil - usually short lived)
  44. Who is hurt by inflation?
    • Savers
    • Fixed-Income workers
    • Creditors
  45. Who is unaffected by inflation?
    • Debtors
    • Hyper-inflation
    • Overall rapid proices rise on most products
Card Set:
2011-10-18 02:22:25

Chapters 23-26
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