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macro
ch 7,9,10
| Term | Definition |
|---|---|
| national income accounting | measures economy's overall performance |
| Gross Domestic Product GDP | total market value of all final goods and services produce within an economy in a given period of time |
| market value | the price of goods and services |
| final goods | finally reaches consumer |
| Gross National Product GNP | ownership of resources |
| Intermediate Goods | products that are purchased for resale or further processing or manufacturing |
| Value Added Method | intermediate goods added together |
| Three Reports of GDP | 1)Advance 2)Preliminary 3)Final |
| Excluded from GDP | 1)Transfer or Welfare payments 2)Second hand sales (already owned houses) 3)Securities transactions (bonds, stocks) |
| two views of GDP | 1) expenditures approach 2) income approach |
| 4 categories of Expenditure Approach | a)Personal consumption expenditures (C) b)Gross private domestic investment (Ig) c)Government purchases (G) d)Net exports (Xn) |
| Personal Consumption expenditure | 1)durable goods (cars, furniture) 2)nondurable goods (food, clothing, gasoline) 3)services economy (healthcare, lawyers, hair stylists) |
| Gross Domestic Private Investment | 1) new home sales 2) Inventory (unsold goods) 3) Depreciation (money to replace equip) |
| Government Purchases | federal or state |
| Net Exports | Exports(positive) - Imports(negative) |
| Net Investments (Ig) | Gross investment-depreciation |
| Income Approach | a) compensation of employees b) rents c) interest d) proprietor's' income e) corporate profits f) tax on productions and imports = National Income |
| What is bigger and why, Expenditure or Income Approach? | Expenditure, because Income Approach does not include depreciation because it is not a source of income |
| Net Domestic Product (NDP) | GDP- Depreciation |
| Personal Income | National Income - Income earned but not received + income received but not earned (welfare) |
| Disposable Income | Personal income - taxes (consume) Consumption + savings (save) |
| Nominal GDP | prices of goods and services Current year prices |
| Real GDP | the one most concerned about Base- year price (2009 base year) |
| Price Index | a) Nominal GDP/GDP Index x 100 =Real GDP b) Price of market/Price of market in base year x 100 = Price Index |
| Limitations and Problems with GDP | 1) non-market transactions are excluded (stay at home parent) 2) leisure time (average work hours decease) 3) Composition and distribution of GDP 4) Environment 5) Underground economy (illegal or under the table jobs) 6) Non economic factors (crime) |
| Business Cycles | Alternating rises and declines in the level of economic activity |
| Peak | economy is near or full employment. Price level is likely to rise during this phase |
| Recession | decline in total output, income and employment. |
| Trough | employment bottom out at their lowest levels |
| Expansion | after a trough. when real GDP, income, and employment rise |
| Sources of Business Cycle | 1) Irregular Innovation 2) Productivity changes 3) Monetary Factors 4) Political Events 5) Financial instability |
| Durable Goods | More hurt by recessions. Tend to benefit more from expansion |
| Nondurable Goods | Less hurt by recessions. Tend to benefit less from expansion |
| Labor Force | Employed=working Unemployed=not working but looking for work |
| Not in labor force | not working and not looking for work |
| Unemployment Rate | people unemployed/labor force X 100 |
| Two main problems with Unemployment | 1) Part-time workers are counted as full-time 2) Discouraged workers(not currently looking for jobs) |
| Types of Unemployment | 1) Fictional unemployment: short term (necessary skills) 2) Structural: long term (no necessary skills) 3) Cyclical Unemployment: Due to business cycle |
| Cyclical Unemployment | a) full employment= 0 cyclical unemployment b) full employment=fictional unemplt+structural unempl c) full employment= natural rate of unempl. |
| Cost of Unemployment | 1) Loss of GDP 2) Loss of income 3) Not everyone has the same unemployment rate 4) Duration of unemployment 5) Non-economic costs |
| Inflation | Usually takes place when expanding The overall price leave is increasing |
| Deflation | The overall price level is decreasing |
| Disinflation | The inflation rate is declining |
| Stagflation | Inflation and a stagnant or declining GDP |
| Hyperinflation | Very high inflation rate |
| Consumer Price Index (CPI) | Includes goods & services that producers purchase Monthly |
| Core CPI | CPI excluding food and energy items |
| Inflation Rate | latest value - previous value/ previous value X 100 |
| Rule of 70 | 70/growth rate.....Number of years for a variable to double can use with anything (GDP, CPI) |
| Types of Inflation | 1) Demand pull inflation: (price) increase in demand that causes inflation a)increase in GDP b) Expansion in economy 2) Cost- push inflation: cost pushing price in economy a) Cost up, supply down b) decrease in GDP c) Sact |
| Effects of Inflation | 1) Lenders and Borrowers a) lender hurt and borrower benefit 2) Employers and Employees a) employee hurt employer benefit 3) Fixed Income and Flexible Income a) annuity payments hurt b) social security payments matched |
| Nominal Interest Rate | Real interest rate + Anticipated interest rate |
| Marginal Propensity to Consume (MPC) | change in consumption/change in income |
| Marginal Propensity to Save (MPS) | change in saving/change in income |
| Average Propensity to Consume (APC) | consumption/Income |
| Average Propensity to Save (APS) | Savings/Income |
| Determinants of Consumption(shift function) changes x-axis | 1) Change in wealth: wealth up = consumption up 2) Change in taxes: taxes down = consumption up 3) Interest Rate: interest rate up = consumption down 4) Expectations: future prices up = consumption up 5) Borrowing: borrowing up = consumption up |
| Determinants of Investment changes y-axis | 1) Change in resource or input price: resource price up=invest down 2) Change in taxes: taxes up=invest down 3) Change in excess capacity: less excess capacity higher investment 4) Expectations: Future prices up=invest up |
| Why is investment more volatile | 1)Irregularity of innovation 2) Irregularity of profits 3) Technological developments 4) Changes in expectations |
| Multiplier Effect | One persons spending turns into another persons income a) change in real GDP/change in spending b) 1/1-MPC or 1/MPS |
| GDP Gap | actual GDP - potential GDP |
Created by:
Ktallen
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