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ECON 201 > Exam 1 > Flashcards

Exam 1 Flashcards

(85 cards)

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1
Q

Definition of Macroeconomics

A

the study of economy-wide phenomena, including inflation, unemployment, and economic growth

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2
Q

How to measure how well a country is doing

A

GDP

Gross domestic product

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3
Q

GDP

A

Measures the total income of everyone in the economy–Measures the total expenditure on the economy’s output of goods and services

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4
Q

For an economy as a whole

A

income must equal expenditure

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5
Q

GDP is the market value of

A

all final goods and services
produced in a country
in a given period of time

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6
Q

GDP identity

A

Y = C + I + G + NX

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7
Q

y

A

GDP

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8
Q

c

A

consumption

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9
Q

I

A

investment

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10
Q

g

A

govt purchases

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11
Q

NX

A

net exports

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12
Q

consumption

A

Spending by households on goods(durable and non-durable goods) and services ( intangibles, education)
the exception of buying a new house

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13
Q

investment

A

Purchase of (capital) goods that will be used to produce other goods and services in the future

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14
Q

business capital

A

business structures, equipment, and intellectual property products

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15
Q

residential capital

A

landlord’s apartment building; a homeowner’s personal residence

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16
Q

govt purchases

A

Government consumption expenditure and gross investment
Spending on goods and services
By local, state, and federal governments
Does not include transfer payments

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17
Q

net exports

A

exports-imports

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18
Q

nominal GDP

A

Production of goods and services

Valued at current prices

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19
Q

real GDP

A

Production of goods and services
Valued at constant prices
Designate one year as the base year
Not affected by changes in prices

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20
Q

for the base year

A

nominal gdp=real gdp

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21
Q

gdp deflator

A

–Ratio of nominal GDP to real GDP times 100
Measures the current level of prices relative to the level of prices in the base year
Can be used to take inflation out of nominal GDP (“deflate” nominal GDP)

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22
Q

inflation

A

Economy’s overall price level is rising

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23
Q

inflation rate

A

Percentage change in some measure of the price level from one period to the next

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24
Q

inflation rate formula

A

gdp deflator in year 2-gdp deflator in year1/gdp deflator in year 1 *100

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25
rich countries with higher gdp
better life expectancy, literacy, internet usage
26
poor countries with low gdp
worse life expectancy, literacy, internet usage
27
real gdp grows overtime
The real GDP of the U.S. economy in 2015 was more than four times its 1965 level Growth – average 3% per year since 1965
28
gdp can be interrupted by
recessions
29
recessions
``` –Two consecutive quarters of falling GDP –Real GDP declines –Lower-income –Rising unemployment –Falling profits –Increased bankruptcies ```
30
CPI
The measure of the overall level of prices | The measure of the overall cost of goods and services
31
calculating CPI
``` fix the basket find prices compute the baskets cost Chose a base year and compute the CPI Compute the inflation rate ```
32
fix the basket
Which prices are most important to the typical consumer | Different weight
33
find prices
at each point in time
34
compute baskets cost
Same basket of goods | Isolate the effects of price changes
35
choose base year and compute cpi
Base year = benchmark Price of basket of goods and services in current year Divided by price of basket in base year Times 100
36
Core cpi
Measure of the overall cost of consumer goods and services excluding food and energy
37
PPI
producer price index Measure of the cost of a basket of goods and services bought by firms Changes in PPI are often thought to be useful in predicting changes in CPI
38
problems in measuring cost of living
substitution bias intro of new goods unmeasured quality change
39
sub bias
Measure of the cost of a basket of goods and services bought by firms Changes in PPI are often thought to be useful in predicting changes in CPI
40
intro of new goods
more variety of goods
41
unmeasured quality change
changes in quality
42
gdp deflator
Ratio of nominal GDP to real GDP | Reflects prices of all goods & services produced domestically
43
CPI reflects
prices of goods & services bought by consumers
44
gdp deflator compares
the price of currently produced goods and services | To the price of the same goods and services in the base year
45
cpi compares
price of a fixed basket of goods and services | To the price of the basket in the base year
46
A price index such as the CPI
Measures the price level and thus determines the size of the inflation correction
47
cost of living varies
Not only over time –But also over geography
48
regional price parities
Measure variation in the cost of living from state to state.
49
regional differences explained by
``` Prices of goods small part Prices of services larger part Housing services persistently large ```
50
indexation
Automatic correction by law or contract Of a dollar amount For the effects of inflation
51
nominal interest rate
Interest rate as usually reported Without a correction for the effects of inflation always exceeds real interest rate
52
real interest rate
Interest rate corrected for the effects of inflation
53
real interest rate formula
Nominal interest rate – Inflation rate
54
real and nominal interest rates dont always
move together
55
periods of deflation
Real interest rate exceeds the nominal interest rate©
56
real gdp per person
Living standard | Vary widely from country to country
57
productivity
–Quantity of goods and services | –Produced from each unit of labor input
58
why is productivity important?
Key determinant of living standards Growth in productivity is the key determinant of growth in living standards An economy’s income is the economy’s output
59
determinants of productivity
Physical capital per worker Human capital per worker Natural resources per worker Technological knowledge
60
physical capital
Stock of equipment and structures | Used to produce goods and services
61
human capital
Knowledge and skills that workers acquire through education, training, and experience
62
natural resources
Inputs into the production of goods and services | will eventually limit how much the world’s economies can grow
63
technological knowledge
Society’s understanding of the best ways to produce goods and services
64
prices of natural resources
Scarcity — reflected in market prices | Our ability to conserve these resources
65
raise future productivity
Invest more current resources in the production of capital | Trade-off
66
trade off
Devote fewer resources to produce goods and services for current consumption
67
higher savings rate
``` Fewer resources used to make consumption goods More resources to make capital goods Capital stock increases Rising productivity More rapid growth in GDP ```
68
diminishing returns
Benefit from an extra unit of an input | Declines as the quantity of the input increases
69
catch up effect
Countries that start off poor | Tend to grow more rapidly than countries that start off rich
70
investment from abroad
Another way for a country to invest in new capital foreign direct investment foreign portfolio investment
71
investments benefits
Some flow back to the foreign capital owners–Increase the economy’s stock of capital Higher productivity Higher wages–State-of-the-art technologies
72
Right investments in the health of the population
–Increase productivity | –Raise living standards
73
Historical trends: long-run economic growth
–Improved health – from better nutrition' | –Taller workers – higher wages – better productivity
74
poor countries are poor because
their populations are not healthy
75
populations are not healthy because
they are poor and cannot afford better healthcare and nutrition
76
virtuous cycle
–Policies that lead to more rapid economic growth –Would naturally improve health outcomes –Which in turn would further promote economic growth
77
to foster economic growth
protect property rights | promote political stability
78
lack of property rights
–Policies that lead to more rapid economic growth –Would naturally improve health outcomes –Which in turn would further promote economic growth
79
political instability
–A threat to property rights –Revolutions and coups –The revolutionary government might confiscate the capital of some businesses –Domestic residents – less incentive to save, invest and start new businesses –Foreigners – less incentive to invest
80
inward-oriented policies
Avoid interaction with the rest of the world' –Infant-industry argument (tariffs, Other trade restrictions) –Adverse effect on economic growth
81
Outward-oriented policies
–Integrate into the world economy International trade in goods and services Economic growth
82
amt of trade is determined by
govt policy | geography
83
Explain why an economy’s GDP must equal its expenditure
An economy’s GDP must be equal to that of its expenditure because every transaction has a buyer and a seller. Therefore expenditure by buyers must equal the income of the sellers.
84
cpi equation
price basket current/price basket base year *100
85
microeconomics
Study of how households and firms Make decisions & Interact in markets

ECON 201 (2 decks)

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