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Stack #4640372
| Question | Answer |
|---|---|
| Gross domestic product | Value of all final goods and services produced in an economy in a given year. |
| How can GDP be measured? | All transactions must include a buyer and a seller. Measured by total dollar value of what consumers purchase or total dollar value of what the country produces. |
| Components of demand included in GDP | Consumer spending Business spending (Investment) Govt spending Net exports |
| Investment | Purchase of new capital goods |
| When does foreign trade have no effect on GDP? | X=M |
| Components of production included in GDP | Durable goods, Nondurable goods, services, structures, change in inventories |
| Another approach to measure GDP | National Income approach Adding up all the income produced in a year |
| What is excluded from GDP calculations | Intermediate goods, Transfer payments, Illegal goods, used goods (incl in last year's GDP) |
| What are intermediate goods | Goods that go into producing other goods |
| What is the difference between nominal and real value? | Nominal value: actual prices that exist at the time Real value: adjusted for inflation |
| Real GDP formula | Nominal GDP/ (price index/100) |
| Significant decline in real GDP | Recession |
| Lengthy and deep recession is: | Depression |
| GDP per capita | GDP/ population |
| Limitations of GDP | 1. Does not include unpaid work or leisure time. 2. Does not include environmental cleanliness, health and learning. 3. Does not include life expectancy or infant mortality 4. Income inequality not addressed in GDP per capita 5. |
| What is the opportunity cost of unemployment? | The output of unemployed workers could have been produced |
| Unemployment rate | Unemployed people/total labor force * 100 |
| What is the opportunity cost of unemployment? | The output of unemployed workers could have been produced |
| Unemployment rate | Unemployed people/total labor force * 100 |
| Limitations of calculating unemployment rate | 1. Does not account for people with part time jobs looking to be employed full time. 2. Discouraged workers 3. Underemployment |
| Underemployment | People who trained for a specific type of job but working another kind of lower paying job that does not fully utilize their skills. |
| Underemployment | People who trained for a specific type of job but working another kind of lower paying job that does not fully utilize their skills. |
| Labor force participation rate | This is the percentage of adults in an economy who are either employed or who are unemployed and looking for a job |
| Cyclical unemployment | Variation in unemployment caused by state of economy from recession to expansion. |
| Why are wages sticky downward? | 1. Minimum wage 2. Implicit contract 3. Efficiency wage theory 4. Adverse selection of wage cuts argument 5. Relative wage coordination argument |
| Efficiency wage theory | Productivity depends on wages Costly and time consuming to train new employs, increase wages slightly to keep current employees instead of having to do that. |
| Frictional unemployment | Unemployment in between jobs |
| Structural unemployment | Laborers who have no jobs because they lack the skills valued by the job market. |
| Full employment | Actual unemployment=Natural unemployment |
| When does real GDP > potential real GDP | Actual unemployment<Natural unemployment Only possible for a short time since analogous to workers working overtime. |
| Inflation | General and ongoing increase in prices in an entire economy. |
| Basket of goods and services | Consists of the individual items individuals, households or businesses buy. |
| Why might the average price of the goods and services in a basket be misleading? | Changes in the price of goods that individuals spend a larger portion of their income on matters more. |
| Annual rate of inflation | (level in new year-level in previous year)/100 |
| How to calculate index number? | Base year/100 This is then divided by the price in the new year. |
| Substitution bias | Rise of price in a basket of goods and services does not take into account that a person can substitute away goods whose prices have risen. |
| Quality and new goods bias | Rise in the price of a basket of goods and services overstates the consumer's cost of living because it does not take into account the improvement in quality of new goods. |
Created by:
kashix