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macro exam 2
formulas & definitions
| Question | Answer |
|---|---|
| Expenditure approach GDP | GDP= C+I+G+(X-M) C=consumption expenditure I=Investment expenditure G=Government expenditure X-M= net imports |
| Income approach GDP | GDP=W+R+i+P+T+D W= labor wages R= rental income I= proprietors' income P=corporation's profits T=net interest D= depreciation |
| GDP per capita | GDP/population |
| Classical economist | long term thinker, free economy limited gov |
| Keynesian economist | short run thinker, gov can intervene to solve problems |
| Monetarist | gov controls money supply to manage inflation |
| fiscal policy | government spends money and uses taxes to influence and redistribute economy |
| monetary policy | central bank (fed reserve) using money supply and interest rates to influence consumption on way or another |
| 3 main economic goals | 1. stable economic growth 2. stable prices 3. full employment (cyclical=0) |
| growth | long run shown by trend usually shown by outward shifts |
| expansion | short run shown by cyclic up and downs |
| recession | falling production increasing unemployment decreasing inflation |
| expansion | rise in production decreasing unemployment rising inflation |
| circular flow model | $: businesses -> resource market -> households -> product market -> repeat goods: businesses -> product market -> households -> resource market -> repeat -product and resource models are equivalent |
| economic injections | investment by businesses government spending exports |
| economic leakages | saving imports taxes |
| product market | GDP= consumption+gross investment+gov spending+exports/imports |
| resource market | |
| 3 main inflation causes | -rise in general demand -price of inputs increases -gov spending (injects $) |
| nominal value | today's prices |
| real value | base year |
| disinflation | inflation rate lowering |
| deflation | prices lowering |
| price index | measure of overall price in economy |
| consumer price index | market basket (typical household) |
| Producer price index | price received for output |
| GDP deflator | measure for level of prices |
| real increase | nominal increase-rate of inflation |
| rate of inflation | end cost-start cost/start cost (100) Take the Consumer Price Index (CPI) for the current period. Subtract the CPI of the previous period from it. Divide the result by the CPI of the previous period. Multiply by 100 to get a percentage. |
| to deflate nominal values (real value=) | nominal value/(price index/100) |
| employed | 16 & work at least one hour a week |
| unemployed | able & searching |
| labor force | employed+unemployed |
| labor force participation rate | labor force/population non-institutionalized |
| marginally attached workers | doesn't work, isn't looking, but worked within past 12 months |
| discouraged workers | no longer part of labor force because of difficulty finding a job |
| unemployment rate | number unemployed/labor force |
| types of unemployment | frictional structural cyclical seasonal |
| frictional | workers switching job |
| structural | workers lack the skills required |
| cyclical | poor economy and decrease in demand lead to unemmployment |
| seasonal | flows w calendar (farmers, for example) |
| employment to population ratio | (employed/adult population) x 100 |
| underemployed | working part-time but wanting a full-time job |
| economic growth | -upward slope trend in gdp -outward shift in ppf -outward shift in long run supply curve |
| why we need growth | -reduced poverty -longer life expectancy -investment in education and technology |
| Real GDP | INCLUDES inflation |
| real gdp per capita | real gdp/population |
| compounding | small differences in economic growth lead to larger changes over time |
| annualized rate | quarterly change in gdp multiplied by 4 |
| year-over-year rate | GDP at current quarter compared to at the same time a year prior |
| rule of 70 | number of years needed to double= 70/annual growth rate |
| factors of economic growth | -strong institutions -factors of production |
| strong institutuions | -financial system -legal system -government institutions |
| factors of production | -land -labor -physical capital(infrastructure) -ideas(entrepreneurship) -technological advancements |
| catch-up effect | growth rate in beginning stages of development is greater |
| production function | output= a x f(l+k+h+n) |
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