econ study guide test 1

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econ study guide test 1
2011-07-20 22:33:09
econ study guide

econ study guide test 1
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  1. Real GDP
    • short for real gross domestic product
    • total value of all final goods and services produced during a particular year or period that is adj to eliminate effects of changes in prices
  2. business cycle
    • series of expansions and contractions of the real GDP
    • begins at peak continues thru a recession, a trough and expansion new cycle begins at next peak
  3. peak
    point of business cycle at which expansion ends & a recession begins
  4. recession
    sustained period in which the real GDP is falling from the peak to trough
  5. trough
    • point at which recession begins and expansion begins
    • real GDP starts to rise
  6. expansion
    • from trough to peak
    • a rise in real GDP until it peaks at which time the new cycle begins
  7. price indexes
    • current cost of basket divided by base period cost of basket
    • base period always has a price index of 1
  8. 4 steps in computing price index
    • 1. select kinds & quantities of goods & services to be included (a market basket)
    • 2. determine what it would cost to buy them in some period (base period) for comparision often 1 year
    • 3. compute cost of market basket in current period
    • 4. compute price index (current cost/base period cost)
  9. Price index formula
    current cost of basket / base period cost of basket

    published often multiplied by 100
  10. base period
    time period against which costs of market basket in other periods will be compared in computing price index is always at 1
  11. Consumer Price Index (CPI)
    • price index reflects changes in prices of goods & services typically purchased by consumers
    • change in cost of living (same as PI)
  12. producer price index (PPI)
    measure of average prices received by producers for raw materials, intermediate & final goods
  13. Implicit price deflator
    • price index for all final goods & services produced
    • ratio of nominal GDP to Real GDP
    • most board based price index available
  14. Computing rate of inflation/deflation
    • % rate of change in price index between 2 periods
    • (price index for current period - price index for base period)/price index for base period
  15. real value of money
    • value expressed in units of constant purchaing power always at the base period
    • nomial value $/price index of base period
  16. nominal value
    value expressed in dollars of the current period
  17. labor force
    • defined as all residents over the age of 16 who are not institutionalized and looking for work or working
    • employed + unemployed but looking for work
  18. unemployement rate
    • unemployed but looking for work/labor force
    • % of labor force unemployed
  19. Frictional unemployement
    short term, usually because workers and employers have to find one another
  20. structural unemployment
    • reflects imperfect match up of employee skills & skill requirements of available jobs or permanent reduction in demand for industry's output
    • can be cuased by advancements in technology
  21. cyclical unemployement
    product of business cycle flucutations increases during recession and decreases during growth of economy
  22. seasonal unemployment
    product of regular, recurring changes in hiring needs of certain industries on monthly or seasonal basis (retail sales during non holiday season)
  23. discouraged worker
    workers who have looked for work in the past year but stopped because they believe they will not be hired
  24. underemployement
    employement of workers in jobs that do not utilize productive skills
  25. natural level of employment
    employment level at which quantity of labor demanded equals quantity supplied
  26. natural rate of unemployment
    excluded cyclical unemployment
  27. Gross Domestic Product (GDP)
    • market value of final goods and services produced within a country during a specific time period, usually a year
    • (only final goods and services count, excludes financial transaction & income transfers, within the geographic boundaries and net additions to inventory are current period output so included)
  28. value added
    sum of the intermediate goods used to produce the final output
  29. GDP as Expenditures
    • sum of amount each sector spends on final user goods & services
    • personal consumption expenditures (C)
    • gross private domestic investment (I) not stock
    • goverment purchases of goods & services (G)
    • net exports (X) (exports - imports)
    • GDP = C+I+G+X
  30. GDP as Income
    • adding up the income of all sectors
    • wages (including benefits)
    • interest (net interest paid by business plus net interest received from foreigners)
    • rent (earned from seeling use of real estate
    • profits (sum of corporate profits plus proprietors income)
    • Capital Consumption Allowance (depreciation of capital goods plus value of accidental damage to capital goods)
    • indirect business taxes (taxes collected by business & turned over to governments)
    • Statistical discrepeancy (miscellaneous money allowing GDP to equate with GDI (Gross Domestic Income)
  31. Gross National Product (GNP)
    • total value of final goods & services produced during a given period by citizens of country no matter where they live (goods & services are produced by the "nationals" of the country)
    • GDP + foreign nationals production
  32. Net National Product (NNP)
    • GNP net of depreciation, includes net investment instead of gross investment
    • (gross investment minus CCA (capital consumption allowance - depreciation))
  33. National Income (NI)
    • NNP less statistical discrepancy
    • measure of income payments that actually go to resources
  34. Personal Income (PI)
    national income plus income currently received but not earned minus income currently earned but not received
  35. Disposable Personal Income
    personal income (PI) minus personal taxes
  36. Nominal GDP
    measure of national output based on current prices of goods & services
  37. Real GDP
    measure of quantity of final goods & services produced, obtained by eliminating the influence of price changes from nomial GDP statistics
  38. consumption
    flow variable measuring value of goods & services purchased by households during time period
  39. private investment
    value of all goods produced for use in production of other goods & services; expenditures by buesiness on assets, on new residential houseing & changing in business inventories
  40. government purchases
    purchases of goods & services plus output produced by government agencies (does not include SS, welfare & unemployment compensation (transfer payments))
  41. net exports
    total sales of goods & services to buyers elsewhere in the world minus imports from foreign countries
  42. Net Domestic Product (NDP)
    GDP minus depreciation
  43. nominal vs real GDP
    real does not record items produced but not exchanged like a periosn preparing own dinner, or bartering & unreported income
  44. investment spending
    spending by firms to buy capital or produce inventory or on new residential housing
  45. aggregate demand
    relationship between real GDP & price level (implicit price deflator)
  46. aggregate demand curve
    • graphical representation of aggregate demand
    • shows relationship between total quantity of output demanded (measured as real GDP) & price level (implicit price deflator) with neg relationship between price level & total quantity of goods/services demanded suggesting ordinary demand curve
  47. multiplier
    change in real GDP demanded at each level divided by initial change (in components of AD)
  48. change (real GDP demanded at each price level)
    multiplier times inital change
  49. Aggregate supply (AS)
    total supply of goods & services at given price level
  50. long term run of AS
    vertical line where AD & AS meet at a certain price level (is potential output)
  51. factors changing AS
    quantity of goods & services supplied, decrease/increase in price of natural resources
  52. factors changing AD
    any of the factors in GDP
  53. wealth effect
    tendency for change in price level to affect real wealth and thus alter consumption
  54. interest rate effect
    tendency for change in price level to affect interest rate & thus affect quantity of investment demanded
  55. potential output
    level of output an economy can acheive when labor is employed at its natural level
  56. inflationary growth
    increase in AD
  57. contraction
    decrease in AD
  58. deflationary growth
    increase in AS
  59. stagflation
    decrease in AS
  60. sticky price
    price that is slow to adjust to equilibrium level creating sustained periods of shortange or surplus
  61. implicit price inflator
    same as price index (nominal GDP)/(real GDP) all times 100