Exam 2 (Ch 6-8) Flashcards
(22 cards)
what are the “two evils” of macroeconomics
inflation and unemployment
what do economists use to measure price level
- based on a representative group of goods and services bought by households monthly called the market basket
Consumer Price Index (CPI)
what federal agency does CPI
Bureau of Labor Statistics (BLS)
8 categories of the market basket
- Food and beverage
- Housing
- Apparel
- Transportation
- Medical care
- Recreation
- Education and communication
- Other goods and services
what is the base year of CPI
It is 1982-84, set at 100
types of unemployment
- Frictional (temporarily between jobs/short-term)
- Structural (displaced by automation/skills no longer needed)
- Cyclical (due to the economy)
- Seasonal (certain times of year)
- Full (natural)
what is the total market value of all final goods and services produced annually within a country’s borders
- in an organized economy
Gross Domestic Product (GDP)
what does GDP omit from its calculations
- Underground activities
- Sales of used goods (already been counted previously)
- Financial Transactions (trading stocks and bonds)
- Government Transfer Payments (social security, veteran’s benefits)
- Leisure
- The “bads” generated in the production of goods (ecological costs/environmental affects)
how is GDP computed with the expenditure approach
GDP = C + I + G + EX
Household - Consumption (nondurable/durable goods + services)
Business - Investment (capital, fixed investments)
Government - Gov. Purchases
Foreign - Net Exports (exports - imports)
what is included in the National Income approach of computing GDP
- Compensation of employees (wages, salaries, tips and benefits) *largest component
- Proprietor’s income (self-employed individuals and unincorporated businesses)
- Corporate profits (income earned by stockholders)
- Rental income (income from nonmonetary assets and returns from patents and copyrights)
- Net Interest
how to you calculate Per-capita GDP
divide a country’s GDP by the population
what are recurrent swings (up and down) in Real GDP
Business Cycle
- Peak
- Contraction
- Trough
- Recovery
- Expansion
the quantity demanded of all goods and services (real GDP) at different price levels
- inverse relationship between price level and quantity demanded
Aggregate Demand
why is the aggregate demand curve downward sloping?
- Real Balance Effect
- monetary wealth
- purchasing power - Interest Rate Effect
- International Trade Effect
four factors that shift the AD curve
- Consumption
- Investment
- Government Purchases
- Net Exports
four factors that affect consumption (that shifts the AD curve)
- Wealth
- Expectations of future prices and income
- Interest rates
- Income taxes
three factors that affect investment (that shifts the AD curve)
- Interest rate
- Expectations about future sales
- Business taxes
two factors that affect net exports (that shifts the AD curve)
- Foreign real national income
- Exchange rate (currency appreciation/deppreciation)
the quantity supplied of all goods and services (real GDP) at different price levels
- direct relationship between price level and quantity supplied (Short-run)
Aggregate Supply
why is the short-run AS curve upward sloping?
- Sticky wages (inflexible)
- Worker misperceptions (may misperceive changes in real wage and decrease their willing labor)
four factors that shift the SRAS curve
- Wage rates
- Prices of non-labor inputs
- Productivity
- Supply shocks (natural or institutional changes)
a curve that represents the output that the economy produces when wages and prices have adjusted to their final equilibrium levels
- vertical line at the level of the level of Natural Real GDP
Long-run Aggregate Supply (LRAS) curve
