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Flashcards in Economic Measurese & Indicatiors Deck (32):
1

GDP can be calculated in 2 ways

Expenditure approach &
Income approach

2

GDP is measured by

household
-Businesses
-Federal, state and local governments
-The foreign sectors

3

The discount rate set by the Federal Reserve is the

Rate that the central bank charges for loans to commercial banks

4

Frictional unemployment refers to unemployment resulting from

The time needed to match qualified job seekers with available jobs.

5

Cyclical unemployment results from:

A recession in the economy.

6

Expenditure Approach (GICE)

-Government expenditures

Capital investment

Consumption

Net exports

7

Valid tools that the Federal Reserve bank uses to control the supply of money



Raising or lowering the discount rate.


Changing the reserve ratio.


Selling government securities.

8

What are the 3 ways to lower money supply?

Lower the required reserve ratio, decrease the discount rate, buy bonds in the open market.

9

Structural Inflation

hen individuals do not have the qualifications or skills necessary to fill available jobs

10

The inflation rate measures:

The rate at which the overall price level increases.

11

stagflation

A combination of rising unemployment and a rising price level

12

Deflation is best defined as

A continuous decline in the overall price level.

13

Inflation can be caused by

Inflation can be caused by

14

What is one of the ways that Federal Reserve Policy would increase money supply?

By reducing the discount rate

15

CPI measures

Rate of Inflation

16

CPI's primary purpose is to

Compare relative price changes over time.

17

Structural.

unemployment typically resulting from technological advances

18

What is the formula for Nominal Interest Rate

Real Interest Rate+ Inflation

19

Inflation Rate (FORMULA)

CPI(CY)-CPI(PY)/ PY X 100= Percentage

20

GDP Income Approach IPIRATED

Income of Proprietors
Profits of Corporations
Interest (Net)
Rental Income
Adjustments for net foreign income and miscellanious items
-Taxes
-Employee compensation (wages)
-Depreciation

21

Demand-Pull Inflation

a) Increases in govt. spending
b) Decreases in taxes
c) Increases in Wealth
d) Increases in the money supply

22

Cost-Push Inflation

a) An increase in oil prices
b) An increase in the nominal wages

23

Relationship between Nominal Interest Rates & Inflation

They tend to move together

24

GNP Gross national product

Includes goods and services from oversees, Produced by a US company

25

Increases in Money Supply

When the FED purchases government securities, it increases the money supply

26

Decreases in Money Supply

When the FEd sells government securities, it decreases the money supply

27

Discount Rate

The discount rate is the interest rate that the Fed charges memeber banks for short-term loans
Raising discount rate dicourages borrowing
Lowering discount rates encourages borrowing

28

Required Reserve Ratio definition

The fraction of the total deposits banks must hold in reserve .
Raising the reserve decreases the money supply
Lowering the reserve increases the money supply

29

Demand for money is inversely related to interest rates

As interest rates rise demand of money goes down.
& opposite

30

Demand for a product tends to be price inelastic if:



Few good substitutes are available for the product

31

Demand for a product tends to be price elastic if:

There are many substitutes for that product

32

Price elasticity of demand

(Q2-Q1/Q1) / (P2-P1/P1)
2= New Price or New Quatity
1= Old Price & Old Quantity