Help
Options
Didn't know it?
click below
click below
Knew it?
click below
click below
Don't Know
Remaining cards (0)
Know
retry
shuffle
restart
0:00
Embed Code - If you would like this activity on your web page, copy the script below and paste it into your web page.
Normal Size Small Size show me how
Normal Size Small Size show me how
Econ 110 Exam 2
Macroecon terms for exam 2
| Question | Answer |
|---|---|
| GDP Definition | The current value of all final goods & services produced in a country within a year; moves according to the Business Cycle; C+I+G+NX |
| What gets counted in the GDP | current production, consumption (household spending), investment (business spending on capital goods), government spending, and net exports (exports minus imports); NOT used goods or non-market activities |
| Components of the GDP | consumption (68%), investment, government spending, net exports = C+I+G+NX |
| GDP per Capita Formula | GDP/Population |
| GDP Deflator Formula | (Nominal GDP / Real GDP) * 100 |
| Nominal GDP Formula | GDP Deflator * Real GDP |
| Real GDP Formula | Nominal GDP / (GDP Deflator / 100) |
| Potential GDP | Max output an economy can produce given tech, physical capital, and institutions at full employment |
| Nominal Values | Prices/Values of today |
| Real Values | Adjusted to be consistent across time |
| Unemployment Definition | Those out of work but actively looking for a job, natural rate is 3-5% |
| 4 Categories of Unemployment | 1. Employed, 2. Unemployed, 3. Out of the Labor Force, 4. Labor Force |
| How to Calculate Unemployment (Unemployment Rate U3) | (Unemployed / Labor Force) * 100 |
| Types of Unemployment (3) | Structural, Frictional, Seasonal |
| Structural Unemployment | Skills of workers do not match the needs of employers (EX: replaced by machines/automation, lack of skills) |
| Frictional Unemployment | When workers move between jobs (EX: first job, better pay search, break to care for family member) |
| Seasonal Unemployment | Temporarily unemployed, job will come back (EX: farmers, teachers, etc.) |
| Cyclical Unemployment | Ups & downs in unemployment by expansions and conractions |
| Sticky wages | Wages do not adjust quickly, can lead to cyclical unemployment |
| Implicit Contract Theory | Employers try to keep wages from falling |
| Efficiency Wage Theory | People paid based on productivity; costly to hire new workers |
| Adverse Selection on Wage Cuts Theory | Firms keep productive workers and fire/layoff rather than trimming wages |
| Insider-Outsider Model Theory | Need to keep people with tenure; wage rigidity & labor turnover costs |
| Relative-Wage Coordination Theory | Even if workers are willing to take a cut, they won't because it is hard to distribute in the aggregate |
| Inflation Definition | General increase in prices across an entire economy |
| Inflation Formula | [(CPIy2-CPIy1) / CPIy1] x 100 |
| Demand-Pull Inflation | Increase in demand in aggregate leads to higher prices |
| Cost-Push Inflation | Increase in cost of production leads to passing costs onto consumers in the form of higher prices |
| Demand-Pull Inflation Mechanisms | CGINX increase |
| Cost-Push Inflation Mechanisms | Higher wages, material costs, cost changes to imports |
| Wage-Price Spiral | Phillips Curve; a positive feedback loop where rising wages lead to higher prices, which in turn leads to demands for even higher wages, causing a cycle of inflation |
| Profit-Price Spiral | Rise in firm markups in anticipation of higher future costs |
| Price-Price Spiral | Firms raise prices which leads to other firms raising their prices as well |
| CPI (Consumer Price Index) | Most popular, price index based on what an avg family of 4 would purchase in US; 8 categories; Housing largest |
| CPI Formula | (Price Levelyear / Price Levelbase) x 100 |
| Problems with CPI | Uncounted economic activity - household tasks, volunteering, bartering, black markets |
| CPI Problem Example | When the price of a good rises, consumers often substitute it for a cheaper alternative. For example, if the price of beef increases significantly, consumers may buy more chicken. |
| CPI Problem Bias | CPI uses a fixed basket, continues to track the higher price of beef even though many consumers are no longer buying it; assumes that consumers are less flexible than they actually are; causes CPI to overstate the actual increase in the cost of living |
| CPI Biases | Substitution bias, quality change bias, new goods bias, outlet (discount/sales) bias |
| Inflation Indices | Producer Price, International Price, Employment Price |
| Producer Price Index | Prices that firms pay for inputs |
| International Price Index | Prices of goods exported or imported |
| Employment Cost Index | Measures wage inflation in labor markers |
| What matters for growth | Key drivers include investments in physical capital (like infrastructure), advancements in human capital (education and skills), technological innovation, and the effective use of natural resources |
| What sustains growth | supportive government policies, stable institutions, and sustainable practices; Investment in education, innovation, infrastructure, and a healthy environment |
| Consumption | Makes up 68% of the GDP in U.S. |
| Investment | New construction, capital, inventories |
| Government | Spending and taxes |
| Net Exports | Exports - Imports |
| Labor Force Participation Formula | (Labor Force / Working Age Population) x 100 |
| Percent Change Formula | [(New-Old)/Old]*100 |
| Sticky wage theory | nominal wages are slow to decrease in response to negative economic shocks, such as a recession; employers fire instead of lowering wages; this is why Keynes says gov. must interfere |
| Keynesian policies emphasize | the role of government intervention, particularly through fiscal policy, to stabilize the economy and manage business cycles; gov spending + taxes - stimulate AD |
| Classical policies emphasize | the self-regulating nature of free markets, advocating for minimal government intervention and trusting that individual self-interest, guided by the "invisible hand," leads to the most efficient allocation of resources and economic growth |
| Keynesian policies recommend | gov should increase spending or cut taxes to stimulate aggregate demand during a recession |
| Classical policies recommend | gov does not interfere, encourage job-hunting, skills training/education |
| Neoclassical focuses on | long run, increasing potential GDP, not short term fluctuations; policy focused on gov policies to incentivize increasing productivity |
| Keynes focuses on | Demand side drives economy, sticky wages and prices, fiscal policy (taxes and gov spending) |
| Aggregate Production Function | Process whereby firms take inputs and create outputs (Real GDP = f(W, H, C, T)) |
| Invention | Advances in knowledge |
| Innovation | Using knowledge in a product or good/service |
| Largest contributor to growth? | Technology |
| Growth Formula | GDPstart*(1+GDPgrowthrate)^years |
| What is a healthy climate for economic growth? | Incentives in a market for improving tech, phys cap, and human cap; gov incentivizes these through policies like taxes, subsidies, regulation, etc. |
| Economic Convergence | Economies with lower per capita income/GDP grow faster than economies with higher per capita income/GDP |
| Extensive | New resources |
| Intensive | Better technology |
Created by:
lexi.welte
Popular Economics sets