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Econ Chapter 12/13
12/07/11
| Question | Answer |
|---|---|
| A way of evaluating a country's economy using statistical measures of its income, spending, and output (how macroeconomics analyze the economy) | National Income Accounting |
| THe market value of all final goods and services produced within a nation in a given time period | Gross Domestic Product (GDP) |
| Three requirements to be included in GDP | Final (not intermediate), produced during the time period, produced within the nation's borders |
| How to calculate GDP | C+I+G+X; Consumption (households), investment (business), government spending, net exports (exports minus imports, represents foreign trade)) |
| An item that does not wear out quickly | Durable good (ex. car) |
| Not something that is owned when bought | Service (ex. seeing a movie) |
| A good that is used up relatively soon after purchase | Nondurable good (ex. popcorn) |
| Two categories of investment | Fixed investment, inventory investment |
| Includes new construction and purchases of such capital goods as equipment, machinery, and tools | Fixed investment |
| Also called unconsumed output, is made up of the unsold goods that businesses keep on hand | Inventory investment |
| Used to gauge how well a country's economy is doing | GDP |
| States GDP in terms of the current value of goods and services, most basic form | Nominal GDP |
| States GDP corrected for changes in prices from year to year, more accurate measure | Real GDP |
| GDP does not measure this, services that have potential economic value but are performed without charge (ex. home childcare or performing one's own home repairs) | Nonmarket activities |
| GDP does not measure, describes market activities that go unreported because they are illegal or because those involved want to avoid taxation | Underground economy |
| What GDP doesn't measure | Nonmarket activities, underground economy, quality of life |
| Percentage of GDP underground economy makes up | 8-10% |
| The market value of all final goods and services produced by a country (GDP + income from goods and services produced here but minus income foreigners gain here) | Gross national product (GNP) |
| The value of final goods and services less the value of capital goods that have become worn out (GNP minus depreciation of capital stock) | Net national product (NNP) |
| The total income earned in a nation from the production of goods and services (NNP minus indirect business taxes) | National income (NI) |
| The income received by a country's people from all sources (NI minus ss taxes, corporate profit taxes, and corporate profits not paid to stockholders and plus ss, unemployment, and welfare payments) | Personal income (PI) |
| Personal income minus taxes, how much money is actually available for spending | Disposable personal income (DPI) |
| US economy expanded | 1990s |
| Economy started slowing down | 2001 |
| A series of expanding and contracting economic activity, measured by increases or decreases in real GDP | Business cycle |
| Four stages of business cycle | Expansion, peak, contraction, and trough |
| An increase in a nation's real gross domestic product (GDP) over a period of time | Economic growth |
| Real GDP grows from a low point, or trough, a period of economic growth, jobs are relatively easy to find, so unemployment goes down; resources become more scarce so prices rise | Expansion |
| The final phase of the business cycle, real GDP and employment stop declining | Trough |
| Longest expansion in US history | 1991-2001 |
| Point at which real GDP is the highest, prices rise and resources tighten, businesses become less profitable, from this point on GDP declines | Peak |
| Begins after peak, producers cut back and resources become less scarce and prices tend to stabilize or fall, unemployment rises because employers produce less; sometimes becomes recession or depression; periods of stagflation | Contraction |
| A prolonged economic contraction lasting two or more quarters (six months or more) | Recession |
| An extended period of high unemployment and reduced business activity (ex. in 1930s) | Depression |
| Describes periods during which prices rise at the same time that there is a slowdown in business activity | Stagflation |
| The sum of all the demand in the economy, curve is downward sloping, as the price level decreases the purchasing power of money increases | Aggregate demand |
| The sum of all the supply in the economy, curve is almost horizontal when real GDP is low, during times of inflation supply curve becomes almost vertical | Aggregate supply |
| The point where the quantity of aggregate demand equals the quantity of aggregate supply | Macroeconomic equilibrium |
| Four factors that cause shifts in the business cycle | Business decisions, changes in interest rates, consumer expectations, and external issues |
| The Organization of the Petroleum Exporting Countries (OPEC) reduced the amount of oil supplied to Western nations that had supported Israel in the Yom Kippur and October wars, the price of oil rose 400 percent | Oil embargo of 1973 |
| Measures of economic performance that usually change before real GDP changes (ex. new building permits, orders for capital goods and consumer goods, consumer expectations, average manufacturing workweek, stock prices, and money supply) | Leading indicators |
| Measures of economic performance that usually change at the same time as del GDP changes (ex. employment, sales volume, and personal income) | Coincident indicators |
| Measures of economic performance that usually change after real GDP changes (ex. length of unemployment and the ratio of consumer credit to personal income) | Lagging indicators |
| Tracks economic indicators and business cycles in the United States, measures contractions | National Bureau of Economic Research (NBER) |
| Focused on federal spending to help the economy revive | Franklin D. Roosevelts New Deal program |
| Argued that increased national wealth came through exporting more goods than a country imports | Mercantilism |
| Saw that the real "wealth of nations" lay in their productive capacities, being efficient, ideas serve as basis for modern economics | Adam Smith |
| Real GDP divided by total population, usual measure of a nation's standard of living | Real GDP per capita |
| Four key factors that determine economic growth | Natural resources, human resources, capital, and technology and innovation |
| The size of the labor force multiplied by the length of the workweek | Labor input |
| An increase in the ratio of capital to labor, workers are equipped with more and better equipment to work with (EX. industrial revolution, sewing machines) | Capital deepening |
| The ratio of the amount of output produced to the amount of input, when the same amount of inputs produces more output | Productivity |
| The ratio between the amount of output produced by an industry or business sector and the amount of inputs used | Multifactor productivity |
| Factors contributing to changes in productivity | Quality of labor, technological innovation, energy costs, financial markets |
| Published "An essay on the principle of population as it affects the future improvement of society", called attention to population growth, said it would double every 25 years, world population grew slower than he predicted | Thomas Robert Malthus |
| The percentage of the labor force that is jobless and looking for work | Unemployment rate |
| Surveys the labor force in 60,000 households each month | US Bureau of Labor Statistics |
| Part-time workers who want full-time work or people working below their soil level | Underemployed |
| Made up of people over the age of 16 who are employed or actively looking for work, doesn't count those in the military, in school, prison, those who stop looking for work, and the underemployed | Civilian labor force |
| Means no unemployment caused by decreased economic activity, unemployment rate of 4-6% | Full employment |
| Four types of unemployment | Frictional, seasonal, structural, cyclical |
| Temporary unemployment of people changing jobs | Frictional unemployment |
| When jobs exist but do not match the skills of available workers | Structural unemployment |
| Unemployment linked to seasonal work | Seasonal unemployment |
| Unemployment caused by a part of the business cycle with decreased economic activity | Cyclical unemployment |
| Impact of unemployment | Reduces efficiency, hurts the least economically secure, and damages workers' self-confidence |
| The condition where a person's income and resources do not allow them to achieve a minimum standard of living | Poverty |
| The minimum income needed to pay for the basic expenses of living | Poverty threshold, also called the poverty line |
| The percentage of people living in households that have incomes below the poverty threshold, based on the pollution as a whole | Poverty rate |
| African-American born in poverty, "how expensive it is to be poor" | James Baldwin |
| Four major factors affecting poverty | Education, discrimination, demographic trends, and changes in the labor force |
| The way income is divided among people | Income distribution |
| The unequal distribution of income | Income inequality |
| A curve that shows the degree of income inequality in a nation | Lorenz curve |
| "War on poverty" in his first State of the Union Address in 1964 | President Lyndon Johnson |
| Government economic and social programs that provide assistance to the needy | Welfare |
| Established the national food stamp program | Food Stamp Act in 1964 |
| Health care for the poor | Medicaid |
| Provides the working poor a refund of payroll taxes and other taxes deducted from their paychecks | Earned-income tax credit |
| Pays benefits to retirees, survivors, and the disabled; largest government program in the world | Social security |
| Provides blocks of federal money to local communities to address such issues as employment, education, and housing, and job training | Community Services Block Grant program |
| Specially designed neighborhoods that are not charged certain taxes | Empowerment Zones |
| A program that requires welfare recipients to do some kind of work | Workfare |
| Direct financial aid, has a limit of five years | Temporary Assistance for Needy Families (TANF) |
| Founded Institute for Liberty and Democracy (ILD), wealth is not protected by the rule of law | Hernando de Soto |
| A sustained rise in the general price level or a fall in the purchasing power of money | Inflation |
| Tool for gauging inflation by consumers, a measure of changes in the prices of goods and services commonly purchased by consumers | Consumer Price Index (CPI) |
| A measure of changes in the wholesale price, gauges inflation experienced by producers | Producer Price Index (PPI) |
| The rate of change in prices over a set period of time | Inflation rate |
| Inflation rates below 1% | Negligible |
| Inflation rates between 1-3% | Moderate |
| If a moderate inflation rate continues over a period of time | Creeping inflation |
| A rapid increase in price level | Galloping inflation |
| When galloping inflation gets out of hand, a rapid, uncontrolled rate of inflation in excess of 50% per month (ex. Germany 1933-1923) | Hyperinflation |
| A decrease in the general price level (ex. Great Depression) | Deflation |
| Results when the total demand rises faster than the production of goods and services, main reason is creation of excess money | Demand-pull inflation |
| Results when increases in the costs of production push up prices, result of supply shocks | Cost-push inflation |
| Sharp increases in prices of raw materials | Supply shocks |
| Limited the amount of oil they sold to the United States and other Western countries, resulting rapid rise in price of oil led to cost-push inflation | Organization of Petroleum Exporting Countries (OPEC) |
| A cycle that begins with increased wages, which lead to higher production costs, which in turn result in higher prices, which result in demands for even higher wages | Wage-price spiral |
| Impact of inflation | Decreasing value of the dollar, increasing interest rates, decreasing real returns on savings, (limited growth of the stock market, forced agricultural bankruptcies, slowed production) |
Created by:
AliRutherford