Aggregate Output, Prices, and Economic Growth Flashcards
(36 cards)
What is GDP? What are the ways it can be calculated?
Total market value of the goods and services produced in a country within a certain period of time. Only the market value of final goods are used.
Expenditure Approach: GDP calculated by summing the amounts spent on goods and services.
Income Approach: amounts earned by households and companies during the period.
What is the difference between sum-of-value added and value-of-final output methods?
Expenditure methods. FoFo - summing the values of final goods and services. SoVa - Summing the value creating at each stage of production.
What is the difference between nominal GDP and real GDP? How do you calculate a GDP deflator?
Nominal GDP is just the regular GDP calculation. Real GDP is the nominal GDP compared to a base year.
GDP deflator= GDP1/GDP0*100
What are the components for the Equation for GDP under exp. approach? Income approach?
GDP = C + I + G + (X-M)
C= consumption spending I= Business investments G= government purchases X=exports M=Imports
Income approach: national income + capital consumption allowance + statistical discrepancies.
How do you calculate national income?
=employee compensation+corporate profits and gov profits+interest income+unincorporated income+rent+indirect business taxes-subsidies
How do you calculate personal income? What is personal disposable income?
national income+transfers to households - indirect business taxes - corporate income taxes - undistributed corporate profits.
PDI= personal income - personal taxes
What is the fundamental equality for balance of payments?
Savings - business investment = (Government Purchases - taxes) - (exports-imports)
What is the fundamental equality for balance of payments?
Savings - business investment = (Government Purchases - taxes) - (exports-imports)
What is MPC and MPS?
Marginal propensity to consume and marginal propensity to save. Percentage of the next dollar that are saved or consumed. Must equal 100%.
What happens when we raise the real interest rate?
Decease financing costs, and increase investment by business. Higher rates = lower aggregate income. This must be the case to hold the inverse relationship between real interest rate and income. Called the IS curve.
What happens when we raise the real interest rate?
Decease financing costs, and increase investment by business. Higher rates = lower aggregate income. This must be the case to hold the inverse relationship between real interest rate and income. Called the IS curve.
What is the LM Curve?
Shows combinations of GDP and real interest rate that keep the relationships of money demanded and supplied equal.
What is the quantity of money theory?
MV=PY
M= money supply, V=velocity of transactions, P=price level, Y=real GDP
Higher the interest rate, the more interest bearing securities people will hold.
What is the aggregate demand curve?
Show the relationship between the quantity of real output demanded and the price level. Increasing the price level will decrease the real money supply.
What is the aggregate supply curve?
Shows the amount of output from firms at different price levels.
What is the aggregate supply curve? What are the different time frame curves called and represent?
Shows the amount of output from firms at different price levels.
VSRAS = Very short run - can assume wages, inputs and price are fixed so that producer can increase or decrease output without price changes. LRAS= Long run - inputs adjust according to price is that it has no effect of aggregate supply. This level of output is called full employment GDP or Potential GDP.
What is the aggregate supply curve? What are the different time frame curves called and represent?
Shows the amount of output from firms at different price levels.
VSRAS = Very short run - can assume wages, inputs and price are fixed so that producer can increase or decrease output without price changes. LRAS= Long run - inputs adjust according to price is that it has no effect of aggregate supply. This level of output is called full employment GDP or Potential GDP.
What are the causes in shifts of the demand curve? What causes movement along?
Shifts: Increase in wealth, business expectations are positive, consumer expectations are positive, high capacity utilization (company using their capacity and investing in capital), expansionary monetary policy (such as lower interest rates). All shift Demand curve right.
Price changes cause movement along demand curve.
What are the causes in shifts of the demand curve? What causes movement along?
Shifts: Increase in wealth, business expectations are positive, consumer expectations are positive, high capacity utilization (company using their capacity and investing in capital), expansionary monetary policy (such as lower interest rates), expansionary fiscal policy (ex. lower taxes) All shift Demand curve right.
Price changes cause movement along demand curve.
What are the causes in shifts of the demand curve? What causes movement along?
Shifts: Increase in wealth, business expectations are positive, consumer expectations are positive, high capacity utilization (company using their capacity and investing in capital), expansionary monetary policy (such as lower interest rates), expansionary fiscal policy (ex. lower taxes), exchange rates (when decreases value, more exports), global economic growth. All shift Demand curve right.
Price changes cause movement along demand curve.
What are the assumptions of the Short Run Aggregate Supply curve? What causes shifts?
Prices of inputs and wages held constant.
Shifts caused by: better productivity, input prices decrease, expected future price increases, decreases in taxes, appreciation of the countries currency to the extent that inputs are purchases from foreign countries.
What are the assumptions of the Short Run Aggregate Supply curve? What causes shifts?
Prices of inputs and wages held constant.
Shifts caused by: better productivity, input prices decrease, expected future price increases, decreases in taxes, appreciation of the countries currency to the extent that inputs are purchases from foreign countries.
What factor shift the LRAS curve? What is the phase called?
Called Full employment. Shifts when: Increase in the supply and quality of labor, increase in natural resources, increase in the stock of physical capital, increase in technology.
What factor shift the LRAS curve? What is the phase called?
Called Full employment. Shifts when: Increase in the supply and quality of labor, increase in natural resources, increase in the stock of physical capital, increase in technology.
