Macroeconomics Exam 2
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Created by:
CollegeChick on October 25, 2011
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47 terms
Terms | Definitions |
|---|---|
 What is nominal GDP? | the value of our output measured at current prices. |
| Why do we distinguish between nominal and real GDP? | Nominal GDP has not factored in inflation (quantity of goods produced x price of each good in this year) Real GDP is adjusted to account for inflation (quantity of goods produced x base year price of good) |
| What is unemployment? | People are counted as unemployed if they do not have a job, but are available for work and have been actively seeking work for the previous 4 weeks. |
| What is employment? | People are counted as employed if they have done any work at all for pay or profit during the survey week. |
| What is the labor force? | the total number of those employed and unemployed |
| What is the working-age population? | the adult (16+) population that is not institutionalized (in a hospital or in jail/ prison) |
| What is the unemployment rate (how to calculate it)? | unemployed / labor force x 100 unemployed / emp + unemp x 100 |
| What is the labor force participation rate? | labor force / working age population x 100 |
| What is a discouraged worker? | Someone who wants a job but has stopped looking for one. |
| What are the major types of unemployment? | Frictional Unemployment, Structural Unemployment, Cyclical Unemployment |
| What is inflation? | % change in aggregate price level is going up |
| What is deflation? | the % change in aggregate price level is going down |
| What is disinflation? | we still have positive inflation, but it's growing more slowly. |
| What is an aggregate price level? | The overall average of a price |
| What is the one weakness of the CPI? | quality bias. The CPI overstates the true inflation rate because it ignores the changes in quality. |
| What is capital? | Something used to produce something else Physical Capital: buildings, machines, factories Human Capital: workers' abilities, education, OJT |
| What is investment? | building physical capital. |
| What is a financial market? | Where funds are transferred from those with an excess to those with a shortage. Moving money from those who have it to those who want it. Channeling money from those without a productive use for their money to those who have a productive use for money. |
| What does a financial market accomplish? | Where funds are transferred from those with an excess to those with a shortage. Moving money from those who have it to those who want it. Channeling money from those without a productive use for their money to those who have a productive use for money. |
| What is the difference between a stock and a bond? | Stocks are only sold by corporations, bonds are sold by corporations and govts. |
| What are the 3 functions of money? | Medium of Exchange, Unit of Account, Store of Value |
| What does each of the 3 functions of money accomplish? | Medium of Exchange, unit of account, Store of Value |
| What is economic growth? | % change in the RGDP |
| How is economic growth measured? | new RGDP - old RGDP / old RGDP |
| What is the rule of 70? | it will take any variable (70 / growth rate) years to double. |
| What is a production function? | A production function gives us a certain amount of labor when land, capital and entrepreneurial ability is fixed. |
| When do we move along a production function? | When we add more labor; hire more workers |
| What causes a production function to shift? | Increasing land, capital or entrepreneurial ability |
| What are all the causes of economic growth? | More resources or an improvement in technology. |
| What is the precise definition of GDP? | The market value of all final goods and services produced within the borders of an economy during a time period |
| The Market Value: | We are using the price of the goods and services and adding them together instead of listing "we have produced 100K computers and 70K hours of health care". We are using the value of all the produced goods and services. |
| Of all final goods and services: | as opposed to intermediate goods and services. A final good's purpose is for the end user. Ex: a Snickers bar is the final good. The peanuts used to produce the Snickers is an intermediate good. We DO NOT count intermediate goods in the GDP (to avoid counting something twice). |
| Produced | Currently produced. For the GDP, we are not going to count something that was produced in a previous period. We only take into account goods and services that were currently produced. You do not include your 20 y/o house, your Rembrandt painting or your garage sale items because those were produced in a previous period. |
| Within the borders of an economy: | If a German Mercedes factory is making cars in the US, Mercedes will be counted in the US's GDP. The GNP is the GDP for nationalities not borders. |
| What is the expenditure approach? | Adds everything spent buying goods/services to calculate GDP. |
| What is the income approach? | adds everything earned producing our goods/services to calculate GDP. |
| What is the formula for expenditure approach? | GDP = C + I + G + Nx |
| What is aggregate output? | all of the goods and services the economy produces |
| What is aggregate income? | all the income generated in an economy in a given period |
| What is an interest rate? | the cost of borrowing money or the incentive for lending money. |
| Why is the bond market important? | 1) It allows corporations and governments to raise money 2) It's where interest rates are determined. |
| Why is the stock market important? | 1) Allows corporations to raise money 2) Affects consumer spending because it's the most widely followed and has wide fluctuations. |
| What is the definition of money? | anything that is generally accepted in exchange for Gs/Ss or in the repayment of debt. |
| What are business cycles? | the upward and downward movement of aggregate output. |
| What is employment to population ratio? | employed/working age population x 100 |
| What is the difference between gross and net investment? | gross investment is not adjusted for depreciation (how much capital has been used up in the year). Net investment is gross investment minus depreciation. |
| What is depreciation? | the wearing away of our physical capital. |
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