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Flashcards in Economics Deck (67)
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For what is a GDP Deflator used?

Used to convert GDP to Real GDP


What is Real GDP?

Nominal GDP / GDP Deflator x 100


What is Gross National Product (GNP)?

Like GDP; Swaps foreign production. US Firms overseas are included- Foreign firms domestically are not included


What is the Consumer Price Index (CPI)? How is it applied?

Price of goods relative to an earlier period of time- which is the benchmark. Year 1 : 1.0

((CPI Current - CPI Last) / CPI Last) * 100


How is disposable income calculated?

Personal Income - Personal Taxes


How is Return to Scale calculated?

% Increase in output / % Increase in input

Greater than 1 : Increasing returns to scale

Less than 1 : Decreasing returns to scale


When is the economy in Recession?

When GDP growth is negative for two consecutive quarters.


What is a Depression?

A prolonged- severe recession with high unemployment rates

No requisite period of time for the economy to officially be in a depression


What are the stages of the Economic Cycle?

Peak (highest)
Recession (decreasing)
Trough (lowest)
Recover (increasing)
Expansion (higher again)


What are leading indicators?

Conditions that occur before a recession or before a recovery

Example: Stock Market or New Housing Starts


What are lagging indicators?

Conditions that occur after a recession or after a recovery

Examples: Prime Interest Rates- Unemployment


What are coincident indicators?

Conditions that occur during a recession or during a recovery

Example: Manufacturing output


Which people are included in the calculation of unemployment?

Only people looking for jobs


What is Cyclical Unemployment?

GDP doesn't grow fast enough to employ all people who are looking for work

Example: People are unemployed in 2010 because there aren't enough jobs available due to the economy


What is Frictional Unemployment?

People are changing jobs or entering the work force. This is a normal aspect of full employment.

Example: A recent college graduate is looking for a job


What is Structural Unemployment?

A worker's job skills do not match those necessary to get a job so they need education or training

Example: A construction worker wants to work in an office- so they quit their job and get computer training


How does inflation relate to unemployment?

High Unemployment : Low Inflation (Vice Versa)


What is the Discount Rate?

The rate a bank pays to borrow from the Fed.


What is the Prime Rate?

The rate a bank charges their best customers on short-term borrowings.


What is the Real Interest Rate?

Inflation-adjusted interest rate


What is the Nominal Rate?

Rate that uses current prices


What is the Risk-Free Rate?

Rate for a loan with 100% certainty of payback.

Usually results in a lower rate.

US Treasuries are an example.


What is included in the M1 money supply?

Currency- Coins- and Deposits


What is included in the M2 money supply?

Highly liquid assets other than currency- coins or deposits


What is Deficit Spending?

Increased spending levels without increased tax revenue.

Lower taxes without decrease in spending

Gamble that the multiplier effect will take over and boost economy


How can the Fed control the money supply?

By buying and selling the government's securities.


How does the Fed control economy-wide interest rates?

By adjusting the discount rate charged to banks


What is a Tariff?

A tax on imported goods


What is a quota?

A limit on the number of goods that can be imported


How do international trade restrictions affect domestic producers?

They are good for domestic producers.

Demand curve shifts right

Fewer substitutes

They can charge higher prices