Chapter 3 GDP Inflation Unemployment CPI Flashcards Preview

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Flashcards in Chapter 3 GDP Inflation Unemployment CPI Deck (82):
0

What is microeconomics

Individual decision-making utility supply and demand

1

Define macroeconomics

Collective actions of entire economy measures movements and output him prices for whole economy domestic and global

2

What are the three goals of economic policy

Maximize economic output and promote production of goods
Minimize the number of people who cannot work
Maintain stable prices

3

Who is responsible for meeting the three economic policy goals

The government from the government employment act of 1946

4

How can we meet the three economic policy goals

By aggregation

5

What is aggregation

The process of putting small numbers into larger statistical measure to track large-scale movements

6

In the circular flow what does the money flows rely on

Wages rent interest profits

7

What does the product flows rely on

Land labor capital entrepreneurship

8

Briefly describe the circular flow

Your output is someone else's income
Business owners are dependent on customers and vice versa

9

What are the big three

Gross domestic product
Unemployment rate
Consumer price index

10

Define gross domestic product

Measures overall output and the economy in dollars
tells us how much stuff we are making

11

Define unemployment rate

Tells us how many people that want to work and can't find jobs

12

Define consumer price index

Tells how much overall prices are rising or falling in the economy

13

What do the big three measure

Economic performance

14

Went to the big three help us do

Understand problems that face modern economics
Understand how we measure performance
Gives us direction to what is happening

15

What does the national income accounting GDP help us do

See the standard of living

16

What is GDP

Total value of all final goods and services produced within our domestic border within a given year
Do not double count

17

What counts in GDP

Final goods and services which are only the goods at retail locations
This make sure all value added is accounted for

Goods and services within our domestic borders

18

What doesn't count for GDP

Financial transactions

Used goods because they were already counted for in earlier years

Black markets because GDP only counts legitimate transactions

19

What percent of the economy is black-market part

15% of the economy

20

How do we measure GDP

The income method
The expenditures method

21

What is the purpose of the expenditures method

Capture all spending done in the economy at retail

22

What are the four categories of the expenditures method

Consumption
Investment
Government
Net exports

23

Define consumption

Spending on stuff
Because category
70% of economic activity

24

Define investment

Spending by business on capital goods
Most volatile changes most frequently

25

What should you keep in mind for investment

People buying new houses counts as investment
Business building inventories Count as well

26

Explain the government part of the expenditures method

Spending on final goods and services by the government
Not welfare
20% of economy

27

Expenditures method net exports

Exports added to GDP
Imports subtracted from GDP
-5% of economy
We import more than we export

28

What is the equation for the expenditures method to calculate GDP

C + I + G + ( X - M ) = GDP

29

What is the income method to calculate GDP

Tracks the income generated

30

Are the parts income

Wages and salaries
Rent
Interest
Proprietor income
Corporate profits

31

What is the overall goal for GDP

Only Count economic activity once

32

What are the problems of GDP measuring the social well-being

Industrial pollution
Natural disasters and environmental cleanup
Leisure time
Black-market
Household production and activity

33

Explain industrial pollution GDP problem

Doesn't count degradation of environment
Social well-being worse due to pollution
Need green GDP which nets out pollution costs

34

Explain the natural disasters and environmental cleanup GDP problem

Cost a lot to clean up
GDP actually grows
So GDP says we're better off but we are not

35

Explain leisure time problem of GDP

Well-being is enhanced by leisure time
GDP does not count this
GDP wants us to work more

36

Explain the black market GDP problem

GDP does not count the economic activity in black markets
Misses utility created by these activities

37

Explain the household production and activity GDP problem

A lot of economic activity goes on in the household
GDP it does not take this into account

38

Is there a perfect measure for our well-being

No

39

Give an insight to unemployment

Unemployment workers means unemployed capital
This causes hardship for people who cannot find work

40

People with jobs

Employed

41

People without jobs looking for jobs and are available to work

Unemployed

42

People not in the labor force you do not count towards unemployment statistics

People you neither employed nor unemployed

43

What are the types of unemployment

Seasonal
Frictional
Structural
Cyclical

44

Seasonal unemployment

People not employed due to seasonal nature of work

45

Frictional unemployment

People between jobs while looking for another
Shortest type

46

Structural unemployment

People who lose work because their skills are not needed in current economy
Longest type

47

Cyclical unemployment

People lose jobs due to economic downturn such as a recession
Totally out of the workers control

48

What type of unemployment do we care about

Cyclical and structural

49

What happens to unemployment as GDP decreases

Unemployment increases

50

what are the problems with unemployment

Discouraged workers and underemployed

51

Discouraged workers

People that have given up looking for work and are out of the labor force
This makes unemployment rate seem lower than it actually is

52

Under employed

Workers working fewer hours then they would like and would work more if they could

Hey count as employed thus skewing unemployment rate

53

How do we make unemployment more accurate

Factor in the discouraged workers and underemployed groups

54

How do we solve unemployment

Increase economic activity in some way or fashion
Provide people with temporary benefits
Use job-training programs and unemployment agencies to retrain people for work or match them with jobs in the area

55

Define inflation

A sustained increase in the price level overtime

56

What is inflation and what does it create

Inflation is unexpected and creates arbitrary

57

Who Sri the winners for inflation

The borrowers

58

Who are the losers for inflation

Lenders
Savers
Fixed income folks

59

Happens to purchasing power as inflation is increased

Purchasing power decreases

60

What happens because most inflation is expected

People receive regular wage raises these offset the losses in purchasing power
Thanks adjust interest rates to avoid inflationary losses

61

What interest rate includes inflation

Nominal interest this always changes

62

What rate stays the same and does not include inflation

Real interest rate

63

What is the goal to measuring inflation

Accurately measure overall prices

64

The CPI stand for

Consumer price index

65

What are the two tips for measuring inflation

Use a diverse weighted market basket of goods and services
Use a base year of prices as a reference point of comparison

66

What does it mean by diverse and weighted

Diverse means different good types
Weighted means match goods to proper proportions ex. Age groups

67

What does the consumer price index do

Takes a set of complicated Numbers and turns them into a single understandable number

68

What must nominal GDP always do for real GDP to grow

Nominal GDP must grow faster than inflation

69

What should always be taken into account when analyzing the growth of the economy

Inflation

70

What are the four parts of the business cycle

Trough
Expansion
Peak
Recession

71

Trough

Low point of economic activity in a cycle

72

Expansion

GDP growing
CPI rising
Unemployment falling

73

Peak

Height of economic activity just before a recession

74

Recession

GDP shrinking CPI falling unemployment rising

75

How long must GDP shrink for it to be considered a recession

Six months at least

76

What are most recessions cost by

Falling investment

77

What is the good number for GDP

3-5% growth

78

What is the good numbers for unemployment

5 to 6%

79

What is unemployment always

Sectional and structural unemployment

80

What are the good numbers for CPI

2 to 3%

81

What can excessive GDP growth tigger and why

Inflation and because scarcity is more acute