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Principle of economics > CH 7+8+9 > Flashcards

CH 7+8+9 Flashcards

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1
Q

GDP (definition)

A

total value of all final goods+services produced in an economy, during a given period, usually a year

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2
Q

real GDP (definition)

A

total value of all final G+S produced in economy during given year, calculated using prices of a specific base year

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3
Q

national accounts

A

keep track of flows of money between different sectors of economy:
- spending of consumers
- sales of producers
- business investment spending
- government purchases
and more
–> reliable indicator of country’s state of economic development: the more reliable the accounts, the more economically advanced the country

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4
Q

flows of money into markets for goods+services comes from 4 distinctive markets:

A
  1. government–> purchases of goods and services (education, defence etc)
  2. households–> consumer spending
  3. firms–> imvestment spending
  4. rest of the world–> exports(-imports)
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5
Q

consumer spending (definition)

A

spending on goods+services through markets of goods and services from firms/imports rest world

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6
Q

investment spending

A

firm spending on productive physical capital–> like machinery, constructions of buildings AND inventory–> firm buys this from other firms

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7
Q

GDP formula aggregate

A

C+I+G + (X –imports)

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8
Q

final goods+services

A

goods+services sold to the final/end user–> example: consumers buying a car

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9
Q

intermediate goods+services

A

bought from one firm by another firm–> inputs for production of final goods+services

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10
Q

3 ways to calculate GDP

A
  1. sum of value added
  2. aggregate spending
  3. total payment to factors (from firms to households)
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11
Q

value added (formula)

A

value of final sale– purchase of intermediate goods+services

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12
Q

What does count in GDP

A
  • investment spending
  • capital spending
  • domestically produced final goods+services
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13
Q

What doesn’t count in GDP

A
  • spending on intermediate goods+services
  • used goods
  • financial assets–> bonds, stocks
  • import spending
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14
Q

net exports (formula)

A

value of exports – value of imports

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15
Q

aggregate output

A

total quantity of final G+S economy produces

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16
Q

nominal GDP

A

value of final G+S produced in economy during given year during given year, calculated using prices current year in which output is produced

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17
Q

chain dollars

A

method of calculating changes in real GDP using the average between growth rate calculated using an early base year and the growth rate calculated using a late base year

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18
Q

GDP per capita Formula

A

GDP : size of population

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19
Q

aggregate price level (definition)

A

level of mesure of the overall price levels in the economy

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20
Q

consumption bundle

A

typical basket of G+S purchase dbefore price changes

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21
Q

market basket

A

hypothetical consumption bundle, used to measure changes in overall price level

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22
Q

price index (definition)

A

measures the cost of purchasing a given selected market basket in a given year, where that cost is normalised so its equal to 100 in selected base year

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23
Q

price Index Formula

A

cost marketbasket in a given year : cost market basket in base year X100

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24
Q

inflation rate (definition)

A

annual percent change in an official price index

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25
inflation rate (formula)
price index year 2-- price index year 1 X100
26
consumer price index (definition)
measures of cost of market basket of a typical family --> intends to show how cost of all purchases by typical urban family has changed overtime
27
producer price index (definition)
measures changes in prices of goods/services purchased by producers --> often early warning sign of changes in inflation rate (tends to fluctuate most!!)
28
GDP deflator (definition)
gives inndication aggregate price level went up or down
29
GDP deflator Formula
(nominal GDP ÷ Real GDP) X100
30
monetary policy
decisions about the quantity of money and key interest rates
31
employment
number of people currently employed in the economy, either full time or part time
32
unemployed
number of people actively looking for work (last 4 weeks) but aren't employed
33
labour force formula
employment+unemployment
34
labour force participation rate (definition)
percentage of population 16+ that is in the workforce
35
labour force participation rate formula
labour force ÷ population 16 and older X 100
36
unemployment rate (definition)
percentage of total number of people in labour force who are unemployed
37
unemployment rate Formula
number of unemployed workers ÷ labour force X100
38
unemployment rate can:
- overstate true level of unemployment--> unemployment rate never 0 because also count people with high chance of getting job but still not decided if want to accept - understate true level of unemployment--> if haven't been looking in last 4 weeks not counted --> also if underemployed also not counted
39
discouraged workers
non working people capable of working but have given up looking forjob given state of job market
40
marginally attached workers
would like to be employed and have looked for job in recent past but currently not looking
41
underemployed
number of people who work part time becase they can't find full-time jobs
42
jobless recovery (growth recession)
period in which real GDP growth rate is positive but unemployment is still rising
43
frictional unemployment
unemployment due to the time workers spend in job search--> don't want job that doesn't meet their standards/education/preferred work field
44
structural unemployment
more people seeking job in particular sector than jobs available at current wage rate, even when economy at peak of business cycle
45
minimum wage
government mandated floor on wage rate
46
unions
organisation of workers that bargain collectively with employers to raise wages and improve working conditions
47
efficiency wages
that employers set above equilibriym wage rates as an incentive for better employee performance
48
natural rate of unemployment (definition)
unemployment rate that arises from the effects of frictional+structural unemployment
49
cyclical unemployment
the deviation of teh actual rate of unemployment from the natural rate due to downturns in the business cycle
50
natural unemployment formula
frictional unemployment+structural unemployment
51
actual unemployment formula
natural unemployment+cyclical unemployment
52
real wage formula
wage rate ÷ price level
53
real income formula
income ÷ price level
54
shoe leather costs
increased costs of transaction caused by inflation--> name from wear+tear of running around people trying to avoid holding onto money
55
hyperinflation
occurs when prices rise by 50% or more per month--> making annual inflation rate around 13k%
56
menu costs
the real cost of changing a listed price
57
unit of account costs (of inflation)
costs arising from the way inflation makes money a less reliable unit of measurement
58
interest rate
the price, calculated as a percentage of the amount borrowed, that lenders charge borrowers for the use of their savings for one year
59
nominal interest rate (definition)
interest rate expressed in dollar (a currency) terms--> the rate you see on a loan contract
60
real interest rate
nominal interest rate--the rate of inflation
61
long-run economic growth
gradual process, real GDP per capita grows max few % per year
62
rule of 70
the time it atkes a variable that grows gradually over time to double is approx 70÷by annual growth rate of that variable --> example: if growth rate 2%--> takes 35 years to double CAN ONLY BE APPLIED TO A POSITIVE GROWTH RATE !!!!!
63
change in level
real GDP changed at certain point in time
64
rate of change
statements about economic growth over a period of years
65
(labour)productivity (definition)
output per worker, or sometimes per hour
66
labour productivity (formula)
real GDP:number of people working
67
3 sources of productivity growth:
1., physical capital 2. human capital 3. technological progress
68
physical capital (definition)
human-made resources like buildings and machines--> makes workers more productive
69
human capital (definition)
the improvement in labour created by education+knowledge embodied in the workforce
70
technological progress
an advance in the technical means of the production of goods+services
71
aggregate production function (definition)
a hypothetical function that shows how productivity (real capital per worker) depends on the quantities of physical capital per worker and human capital per worker as well as the state of technology
72
diminishing returns to physical capital (definition)
when holding the amount of human capital per worker and the state of technology fixed, each succesive increase in the amount of physical capital per worker leads to a smaller increase in productivity
73
growth accounting
estimates contribution of each major factor in the aggregate production function to economic growth --> allows us to calculate the effects of greater physical+human capital on economic growth
74
total factor productivity
amount of output that can be achieved with a given amount of factor inputs --> when total factor productivity increases, the economy can produce more output with the same quantity of physical capital, human capital and labour --> increases in total factor productivity are central to a country's economic growth--> economists believe technological progress drives increases in total factory productivity
75
3 reasons for differences in growth rates between countries
1. rapidly add to their physical capital through high savings+investment spending 2. increase their human capital by imporving educational institutions 3. make fast technological progress through research and development
76
6 ways government policies can increase economy's growth rate:
1. government subsidies to infrastructure 2. government subsidies to education 3. government subsidies to R&D 4. maintaining a well-functioning financial system 5. protection of property rights 6. political stability and good governance
77
convergence hypothesis
international differences in real GDP per capita tend to narrow over time--> because countries that start with lower GDP per capita tend to have higher growth rates
78
sustainable long-run economic growth
long-run growth that can continye in the face of limited supply of natural resources and with less negative impact on thhe environment --> some sceptics have expressed doubts about whether possible
79
local environment degradation (definition)
affects a geographically limited area--> can be greatly reduced when sufficient political will+resources devoted to finding a solution
80
why does the unemployment rate never fall to zero?
because even when people are just waiting ti sign their contract, they're counted as unemployed
81
why can efficiency wages also result in a higher rate of structural unemployment?
because efficiency wages are higher, there's more incentive for people to start working there. Which can cause more supply than demand resultingin a shortage of jobs, aka a higher structural unemployment
82
why can Goverment policies increase structural unemployment?
the benefits for laid-off workers can reduce the incentives to quickly look for a new job
83
source of long-term economic growth:
- (labour)productivity
84
how do you decrease inflation rate? (2ways)
- quantative tightening - increasing interest rates

Principle of economics (7 decks)

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