Unit 2 Macro Measures
Terms in this set (41)
Three Major econ goals
1. Promote Economic Growth
2. Limit Unemployment
3. Stabilize Prices
What is GDP?
Gross Domestic Product is the dollar value of all final goods and services produced within a country's borders in one year.
How do you use GDP?
-to compare to previous years
-to compare policy changes
-to compare to other countries
What is not included in GDP?
Intermediate goods, Non-production transactions, Non-market Activities
"Double Counting", Only Final Goods
No used goods, Nothing produced
Non-monitored and non-recorded
EX: selling illegal drugs or house sitting
What are the four components of GDP?
Consumer Spending, Government spending, Investments, Net Exports
What is the GDP equation?
What is inflation?
A rising general level of prices
GDP that measures current prices, does not account for inflation
GDP expressed in constant, or unchanging dollars
adjusts for inflation
What is the best measure of economic growth?
Real GDP per Capita
GDP divided by the total population. It identifies on average how much production each person is responsible for.
What is the best measure of a nation's standard of living?
Real GDP per Capita
The Unemployment Rate
The percent of people in the labor force who want a job but are not working.
What are the three types of unemployment
1. Frictional unemployment
- Seasonal unemployment
2. Structural unemployment
3. Seasonal unemployment
Temporary unemployment, being between jobs
EX: High school and college graduate looking for jobs, Fired and looking for a job.
A type of frictional unemployment; only occurs during certain seasons
Changes in structures of the labor force make skills obsolete
Unemployment that results from economic downturns (Recessions)
What makes up the Natural Rate of Unemployment?
Frictional and Structural Unemployment
When are we at full employment?
If we only have the natural rate of unemployment
When unemployment rises 1 percent above the natural rate, GDP falls by about 2 percent
Phone survey, Part-time workers, discouraged workers, Race/age
What is the problem with inflation?
Reduces "Purchasing Power"
How is inflation measured?
The government tracks the prices of the same goods and services each year.
Who is hurt by inflation?
Lenders, People with fixed income, Savers
Who is helped by inflation?
Borrowers and a business where the price of the product increases fast than the price of the resources
Cost of Living Adjustments (COLA)
Some workers have salaries that mirror inflation. They negotiated wages that rise with inflation.
Consumer Price Index (CPI)
Measures the price of only the goods and services bought by consumers.
Problems with CPI
1. Substitution Bias
2. New Products
3. Product Quality
Measures the price of all goods produced
What does the GDP deflator include?
-Only goods and services produced domestically
What are the 3 causes of Inflation
1. Government prints too much money (Quantity Theory of Money)
2. Demand Pull Inflammation
3. Cost-Push Inflation
Quantity Theory of Money
The velocity of money is the average times a dollar is spent and respent in a year
"Too many dollar chasing too few goods" Demand increases, but prices staying the same resulting in a shortage.
Higher production costs increase prices
A negative supply shock increases the cost of production and forces producers to increase prices.
The Wage-Price Spiral
1. Workers demand raises
2. Owners increase prices to pay for raises
3. Higher prices cause workers to demand higher raises
4-6. And so on...
Nominal Interest Rate
Actual Terms agreed to
Real Interest Rate
What loan "really" costs you or "real" profit for bank
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