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Flashcards in Discussion handouts Deck (40):
1

Movement along the supply curve

A change in the quantity supplied of a good that is the result of a change in that good's price

2

Law of Demand

Price goes up

Quantity demanded goes down

*creates downward sloping demand curve

3

Substitution effect

If the price of good A falls relative to price of good B (substitute)

then quantity demanded for good A increases relative to quantity demanded for good B

4

Income effect

If the price of good A (normal) falls

then Quantity demanded for good A increases as the purchasing power of consmers has increased

5

Possible demand shifters

Income

Price of related goods

Preferences

Population

Expectations

6

GDP defintion

the market value of all final goods and services produced in a country during a period of time, typically over one year

7

GDP is measured using ____________

market values, not quantities

8

GDP includes only ______________

final goods, not intermediate goods

9

final good/service

Purchased by its final user and is not included in the production of any other good or service

10

Intermediate good/service

A good or service used as an input into the production of another good or service

11

GDP formula

GDP (Y) = C + I + G + NX

Consumption

Investment

Government purchases

Net exports (exports - imports)

12

Value added

Refers to the additional market values a firm gives to a product

GDP calculation: (price for which the firm sells a good) - (price it paid other firms for intermediate goods)

13

Income approach: GDP calculation

GDP = Wages + Interest + Rent + Profits

14

Real GDP

Real GDP = Quantities (current) x Price (base year)

15

Nominal GDP

Nominal GDP = Quantities (current) x Prices (current)

16

GDP deflator

A measure of price level

Nominal GDP 

Real GDP           X100  

*Used to describe inflation vs. deflation

17

Gross National Product (GNP)

The value of final goods and services produced by residents of the U.S, even if the production takes place outside of the US

*does not include domestic production by non U.S firms

18

Personal Income

Income received by households, not earned by the firms, add transfer payments

19

Disposable personal income

Personal income - tax

20

Unemployment rate

Measures the percentage of the labor force that is unemployed

number of unemployed

labor force              X100

21

Labor force includes:

employed + unemployed

22

Underemployed

People who have a part time job but are looking for a full time job

23

Employed includes:

Full time + part time

24

Labor force participation rate

Measures the percentage of the working age population that is in the labor force

labor force

working age population         X100

25

Note: Labor Force

Refers to the employed and unemployed individuals of working age

People not included in labor force: students, retirees, prisoners, stay-at-home parents, discouraged workers, etc.

26

Frictional unemployment

Imperfect information and temporary periods of unemployment while workers are changing jobs

27

Structural unemployment

Arises from a persistent mismatch between the job skills or attributes of workers and the requirement of jobs

"retraining"

28

Cyclical unemployment

Caused by changes in the business cycle

29

Full unemployment

frictional unemployment + structural unemployment

30

31

Real GDP =

Nominal GDP

GDP deflator X 100

32

CPI

Average of the prices of some commonly consumed goods and services

Value basket current year

Value basket base year X100

33

Value basket in CPI

Hold quantities the same to see the change in price of the basket

34

Inflation = 

Change in deflator

Deflator base

 

 

Change in CPI

CPI base

35

Real interest rate

Real interest rate = Nominal interest rate - Inflation rate

36

Unanticipated inflation

An increase in the price level that comes as a surprise, at least for most individuals

37

Anticipated inflation

A widely excepted change in the price level

38

Introduction of new goods and services into the economy

causes the CPI to overestimate the cost of living

because:

New goods cost less than existing goods

Consumers start switching to new goods

39

Adjusting for effects of inflation:

Value (Y2) = Value (Y1) x CPI (Y2)

                                        CPI (Y1)

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