economics unit 2 ocr

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List and define the 4 components of nominal GDP:

Consumption, investment, government spending, and net exports.

What is consumption (C)?

consumption of goods and services only by consumers

What is investment (Ig)?

goods only for businesses

What is government spending (G)?

Goods for government and military

what are Net Exports (NX)

Exports (x) and imports (x)

Define Nominal GDP:

All goods and services produced in the U.S. non-inflation adjusted

define unemployment

people who cannot get a job even though they are actively seeking a job

define recession:

a period of declining real GDP accompanied by lower real income and higher unemployment

define savings

occurs when consumption is less than your current income

define investment

relates to businesses and is the creation of new business and new capital goods

define storage

goods that have been produced but remain unsold

what are the 4 macroeconomic key objectives

sustainableand steady economic growth and inflation, low unemployment, equillibrium on the balance of payments.

macroeconomics is mostly focused on...

the economy as a whole

the term "recession" describes a situation where:

2 consecutive negative quarters of economic growth (GDP)

Real GDP measures the:

value of final goods and services produced within the borders of a country, corrected for price changes. btw inflation is taken into account

Real GDP is preferred to nominal GDP as a measure of economic performance because

nominal GDP uses current prices and thus may over-or understate true changes in output

Why are high rates of unemployment of concern to economists?

there is lost output that could have been produced if the unemployed had been working

higher rates of unemployment are linked with:

higher crime rates as the unemployed seek to replace lost income

why are economist concerned about inflation?

inflation lowers the standard of living for people whose income doesn't increase as fast as the price level.

define value added

the market valve of a firms output less the valv of the inputs the firms has bought form others

define price index

a measure of the price of specified goods and services in the market basket in a given year as compared to the price of similar goods the previous year

define basket of goods

the specific collection of goods and services in a given or current year as compared to the price of identical items the year befo

a consumer price index attempts to measure changes in

the price of a select market basket of goods and services

Goods and services sold are not GDP. True or false?

True

Final goods and services refer to:

goods and services purchased by ultimate users, rather thatn for resale or further processing

Net exports are negative when...

a nations imports exceed its exports

if depreciation (consumption of fixed capital) exceeds gross domestic investment, we can conclude that:

net investment is negative

In national income accounting , government purchases include:

purchases by federal, state and local governments

nominal GDP is:

the sum of all monetary transactions involving final goods and services that occur in the economy in a year

Real GDP refers to:

GDP data that have been adjusted for changes in the price level

Nominal GDP is adjusted for price changes through the use of:

the GDP price index

A price index is?

a comparison of current price of a market basket to a fixed point of reference

what is the real GDP per capita (per person) formula?

Real GDP/ population

What is the formula for growth rate per real GDP?

real GDP of ending or current year - real GDP of beginning or previous year / real GDP of beginning or previous year X 100

Define economic growth.

An increase in real GDP occurring over some time period. or An increase in real GDP per capita occurring over some period of time.

What are the three types of unemployment?

Frictional unemployment, structural unemployment, cyclical unemployment.

What is frictional unemployment?

It is seasoned induced and the labor market doesn't operate perfectly.

What is structural unemployment?

People who used to make things that no longer need to be made.

What is cyclical unemployment?

People who had jobs that are no longer useful / need?

What is full employment?

Full employment is less than 100% percent employment of Labor when experiencing frictional and structural unemployment.

What is a depression?

A very long and severe recession.

Define "Natural Rate of Unemployment":

The full-employment unemployment rate; the unemployment rate occurring when there is not cyclical unemployment and the economy is achieving its potential output.

What is inflation?

A rise in the general level of prices.

What is deflation?

A decline in the economy's price level.

Define Consumer Price Index:

An index that measures the prices of a fixed "market basket" of some 300 goods and services bought by a "typical" consumer.

What are the 2 types of Inflation?

Demand-Pull and Cost-Push.

What is Demand-Pull Inflation?

When demand outpaces the economy's ability to produce goods & services.

What is Cost-Push Inflation?

When cost of business production increases the price consumers pay will increase.

Define "Cost of Living Allowance":

An automatic increase in the incomes (wages) of workers when inflation occurs.

What is hyperinflation?

A very rapid rise in the price level; and extremely high rate of inflation.

Real GDP per capita is found by?

Dividing real GDP by population.

Real GDP per captia can...?

Grow more slowly or rapidly than real GDP.

Which of the following best measures improvements in the standard of living of a nation?

The growth of real GDP per capita

For a nation's real GDP per captia to rise during a year:

It's real GDP must increase more rapidly than it's population.

Economic growth can be portrayed as:

An outward shift of the production possibilities curve.

Economic decline can be portrayed as:

An inward shift of the production possibilities curve.

Bob voluntarily quit his job as an insurance agent to return to school full-time to earn a MBA degree. With the degree in his hand, he is now searching for a position in management. Bob is presently?

Fictionally unemployed.

The labor force includes:

employed workers and person who are officially unemployed

Demand-pull inflation occurs when..

total spending exceeds the economy's ability to provide output at the existing price level

inflation initiated by increases in wages or other resource prices is labeled:

cost-push inflation

How do you find a output Gap?

Actual GDP (production) - Potential GDP (production)

How do you find the unemployment rate?

(# of people unemployed / labor force) x 100

How do you find CPI?

(Price of market basket latest year / price of market basket beginning) x 100

How do you find the change in CPI?

(CPI latest year - CPI Beginning year / CPI Beginning year) x 100

How do you find the nominal interest rate?

Real interest rate + inflation %

What is the real GDP per capita formula?

Real GDP / Population

What is the growth rate per real GDP formula?

(Real GDP of ending year - Real GDP of beginning year / Real GDP of beginning year) x 100

Growth rate per GDP per capita

(GDP per capita of ending year - GDP per capita of beginning year / GDP per capita of beginning) x 100

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