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UNIT 5 econ TEST
ECONOMICS study guide
| Questions | Answer |
|---|---|
| What is National Income Accounting? | A system of Statistics and accounts that keeps track of production, consumption, saving, and investments to track over all economic production. |
| What is the definition of Gross Domestic Product? | The dollar amount of all goods and services produced within a country's national borders in a year. |
| What is the purpose of GDP? | It's the most important measure of the economy's overall economic performance. |
| What is the GDP's Output-Expenditure Model? | Consumer (C) + Investment in Business (I) + Government (G) + Foreign Sector (F or XN: Net Exports=Exports+imports |
| What does GDP include? | 1. All final Sales:end user uses product without intentions of reselling. 2. All production within a nations borders whether it is a U.S. company or a foreign company making the item. |
| What does GDP NOT include? | 1.Intermediate Products: used to make other goods. 2. Second Hand Sales: Sale that doesn't create new wealth 3. Non-market activities: Things you do for yourself. 4. Illegal Activities (self explanatory) |
| PROBLEMS with GDP: | 1. Reporting slow: Done quarterly. 2. Doesn't tell where GDP increase/decrease comes from? 3.It doesn't tell if your quality of life has improved. (ONLY tells production in country.) 4. No value or show of non-market activities or illegal activities. |
| GDP Deflator: | an index of average levels of prices for all goods and services in the economy. (used to adjust GDP) |
| What is Current GDP? | When GDP is not adjusted to remove the effects of inflation. |
| What is the difference between Nominal GDP or GDP and Real GDP or GDP in "Constant Dollars"? | Nominal GDP is NOT adjusted for inflation while Real GDP is not adjusted for inflation. |
| What is Price Index? | A statistical series that can be used to measure changes in prices over time. |
| How do you calculate Price Index? | 1. Set a base year 2. Determine a market Basket of goods to be tracked over time. 3. Record price of goods in basket. 4. Compute percentage change in prices from base year. 3. |
| What is the price index's purpose? | To measure the inflation. |
| What does the Consumer Price index do? | it reports on price changes for about 80,000 items in 364 categories. |
| What is Real GDP Per Capita? | it's the amount of real GDP produced for every person in the economy. (Real GDP/Population) |
| What does Real GDP Per Capita do? | 1. it measures economic growth. 2. allows comparisons between countries with different population sizes. |
| What are the Benefits of Economic Growth? | 1. Standard of Living increase. 2. increase tax base for government programs. 3. Growth means more jobs and money for people so there is less poverty. |
| What are the different ways to classify the state of the economy? | 1. Recession 2. Expansion 3. Depression 4. Peak 5. Trough |
| Where is the curve in a recession? | Output is down, Income is down, Employment is down. Decline in real GDP for two consecutive quarters. (First Decline in curve) |
| Where is the curve in/under Expansion? | Output and employment rising towards full employment. |
| Where is a Depression? | When recession gets really bad. -A state of the economy where there are falling prices (deflation), many people out of work, acute shortages, and excess manufacturing capacity. |
| Where is the curve at a Peak? | Full employment, real output close to societies potential, rising price levels (inflation)(First bump of the curve.) |
| Where is the curve at the Trough? | Output at lowest level. (Dip in curve) |
| What are the beliefs in the predictability of the economy? | 1. Business Cycle 2. Business Fluctuations |
| What is the Business Cycle view? | 1. The economy has recurring ups and downs in Real GDP. 2. The problem is that no one can predict the ups and downs. |
| What is the Business Fluctuations view? | GDP will go up and down but there is no pattern to the changes. |
| What are the Unemployed? | People who are available for work, who made a specific effort to find a job during the past month, and who during the most recent survey week worked less than one hour for pay or profit. |
| How do you find the Unemployment Rate? | Take the number of unemployed and divide it by the civilian labor force. |
| What is the main problem with the Unemployment Rate? | 1. It doesn't count people who stopped looking for work. 2. People are considered employed if they hold a part time jobs but they want full time work. |
| What are the different types of unemployment? | 1. Frictional 2. Structural 3. Cyclical 4. Seasonal 5. Technological |
| What is FRICTIONAL UNEMPLOYMENT? | Unemployment caused by workers who are between jobs. |
| What is STRUCTURAL UNEMPLOYMENT? | Unemployment that occurs when a fundamental change in the operations of the economy reduces the demand for workers and their skills. |
| What is CYCLICAL UNEMPLOYMENT? | Unemployment related to changes in economic activity or swings in the business cycle. |
| What is TECHNOLOGICAL UNEMPLOYMENT? | Unemployment where machines replace workers with less skills, talent of education. |
| What is FULL EMPLOYMENT? | The lowest possible unemployment rate with the economy growing and all factors of production being used as efficiently as possible. |
| What is INFLATION? | An increase in general price level. |
| What is DEFLATION? | what we experience when prices fall. (A decrease in general price level) |
| Causes of inflation are... | (1.) Demand Pull (2.) Cost Push (3.) Government Deficit (4.) Wage Price Spiral (5.) Excessive Monetary Growth |
| What is DEMAND PULL? | When consumers, businesses and government all want the same goods so prices rise in response to excess demand. |
| What is COST PUSH? | Inflation caused by increasing input prices. |
| What are the consequences of inflation? | -$ will buy less -Consumer/investors change their spending habits, it disrupts the economy -Speculation increase causes people to spend their money on art (gold, gems) cause their prices rise with inflation & people don't invest in traditional investmen |
| Who is HELPED or HURT by unanticipated inflation? | (HELPED) Borrowers (HURT) Fixed income receivers, savers, creditors |
| FIXED INCOME RECIEVERS | -Retired individuals -Minimum wage earners |
| SAVERS are | hurt if the interest rate is less than the inflation rate. |
| CREDITORS get | paid back with money that's worth less than what they loaned out. |
| BORROWERS | pay back loans with money less that what they received. |
| What does Aggregate Supply Curve show? | the Real GDP that could be produced at various price levels. |
| What causes Aggregate Supply to shift? | *Cost of production for all firms.* Right: cost of production for all firms decreases Left: Cost of production for all firms increases. |
| What is Aggregate Demand? | Total Demand for good and services in the economy. |
| What causes changes in the Aggregate Demand? | Amount of money people save: savings down=AD down (& vice versa) Expectations of the future: favorable=AD up, unfavorable=AD down. Changes in taxes: Taxes down=AD up, Taxes up=AD down |
| What is the Macroeconomic Equilibrium? | Where the Aggregate Demand and Aggregate Supply cross and meet at the same point. |
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