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AP Economics > Macro Measurements/Economic Indicators > Flashcards

Macro Measurements/Economic Indicators Flashcards

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1
Q

Four Components that measure GDP

A

Consumption (C) -
spending on goods/services by households

Investment (I) -
spending by businesses to produce goods and services. (Capital goods and Inventory)

Government (G) -
spending by government

Trade (Net Exports)

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2
Q

What is not accounted in GDP?

A

INTERMEDIATE GOODS - a good bought to make a final good

TRANSFER PAYMENTS - government paying individuals does not represent production

NON MARKET ACTIVITIES -
it is not

USED GOODS - when the goods were produced, was the year the goods were accounted for GDP

ILLEGAL GOODS - it is impossible to

**

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3
Q

GDP acronym?

A

Gross Domestic Product

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4
Q

Define GDP

A

measures the value of all goods and services produced within a country in a year

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5
Q

How is GDP calculated

A

measuring all the quantities of goods and services produced and multiplying by prices **

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6
Q

expenditures approach to GDP

A

1 of 3 ways to calculate GDP:

adding all the spending of final goods and services in an economy

Y = C + I + G + X - M

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7
Q

income approach to GDP

A

2 of 3 ways to calculate GDP:

adding all the incomes earned within a country in a given year

Y = w + i + r +p

wages
interest
rent
profits

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8
Q

value-added approach to GDP

A

3 of 3 way to calculate GDP:

adding up all of the added at the various stages of production.

(raw ingredients or resources and capita)

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9
Q

final goods and services

A

bought in their FINAL form for their intended final use

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10
Q

intermediate goods

A

goods used in production of a Final Product.

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11
Q

Transfer Payment

A

any payment from a government to a household NOT in exchange for good/service

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12
Q

Exports

A

goods produced in a country to be sold to another country

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13
Q

Imports

A

goods that are produced in a different country and now purchased in the other country.

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14
Q

A foreign country builds a plant in Alanta Georgia. Would this be accounted for GDP>

A

Yes. The firm is a purchase within the US and it is counted for investment

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15
Q

What describes new capital?

A

Net investment

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16
Q

Net Investment

A

additional capital that is added to the capital stock

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17
Q

Gross Investment

A

all newly created capital. (Repaired replaced capital and Brand new capital)

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18
Q

Stock of Capital

A

All the capital from all time. new capital and old (no deprication)

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19
Q

Depreciation

A

existing capital wears out (subtracted out)

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20
Q

Relationship between households and firms in the Circular Flow Model

A

Households supply factors of production to Firms for MONEY

Firms supply goods/services to households in exchange for MONEY

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21
Q

quality of life

A

the standard of health, happiness, security of people

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22
Q

real GDP per Capita

A

per person, total GDP divided by poplulation

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23
Q

Limitations of GDP

A
  • excludes non market transactions
  • fails to represent degree of income in society
  • fails to indicate the nations rate of growth in sustainability
  • treating replaced depreciated capital as new capital
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24
Q

The Human Development Index (HDI)
The Genuine Progress Indicator (GPI)
The Happy Planet Index (HPI)

are examples of…

A

indicators that help measure the quality of life

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25
unemployment
people who are not working, but are looking for a job
26
unemployment rate
the percentage of the labor force that is unemployed
27
labor force (equation)
the number in a population who are employed or unemployed LF = unemployed + employed
28
eligible population
likely to be in the labor force (16 years old or older, not in prison/military)
29
labor force participation rate
the percentage of the eligible population to who is in the labor force
30
discouraged workers
people who do not have a job, but will take a job. - GAVE UP LOOKING FOR A JOB - NOT COUNTED IN LABOR FORCE
31
underemployed
people who work part-time, but really want to work full time
32
full employment output
the amount of output that is produced in an economy when that economy is using all of its resources efficiently
33
natural rate of unemployment
the unemployment rate that exists when economy is producing full employment output
34
natural rate of unemployment in recession...
the current unemployment rate is higher than the natural rate
35
natural rate of unemployment in expansion...
the current unemployment rate is less than the natural rate
36
frictional unemployment
natural rate of unemployment is happening because job search is in process
37
structural unemployment
unemployment that happens because of change in economy - new technology or industry
38
cyclical unemployment
unemployment because of EXPANSIONS or RECESSIONS - positive or negative value - current unemployment rate will depend on both natural rate of unemployment and the amount of cyclical unemployment at the time **
39
Labor Force Participation Rate Equation
(Labor Force / Eligible Population) X 100%
40
The unemployment rate equation
(Unemployed/labor force) X %100
41
When Cyclical unemployment is a negative percent that means...
the economy is making more than full employment output
42
When Cyclical unemployment is a percent greater than 0 that means...
the economy is making less than full employment output
43
how does the officially unemployment rate UNDERESTIMATE the actual unemployment situation?
discouraged workers are not in the labor force; they want jobs but have given up.
44
How is Price level measured?
measured by constructing a hypothetical basket of goods and services and calculating the TOTAL cost of buying that basket of goods and the relationship over time
45
How is the Rate of Inflation measured?
is measured as the percentage change between price levels over time
46
index number
a unit free number derived from the price level over a number of years that makes understanding inflation easier
47
Inflation
A sustained increase in the overall price level in the economy. - the purchasing power of the dollar DECREASES
48
Difference between price level and the rate of inflation?
**
49
Consumer Price Index
CPI is a measure of inflation calculated by the gov based on price level from fixed basket of goods/services that represents the PURCHASES OF THE AVERAGE CONSUMER
50
Core inflation index
is a measure of inflation typically calculated by taking the CPI and excluding volatile ** economic variables (food and energy prices)
51
Why does substitution bias arise if the inflation rate is calculated based on fixed basket of goods?
**
52
Why does the quality/new goods bias arise if the inflation rate is calculated based on fixed basket of goods?
**
53
The annual inflation rate in the US economy is roughly...
2%-4%
54
Highest inflation in the United States in the 20th century
occurred during the years after World Wars I and II in 1970s
55
Deflation
negative inflation; overall price level in the economy are DECREASING
56
hyperinflation
outburst high inflation; when economies shift from a controlled economy to market-oriented economy
57
Unexpected inflation hurts who?
people who received money (wage/interest payments) Their money is not worth as much
58
Inflation benefits who?
Inflation can help those who owe money Money paid back is less valuable than it was before
59
inflation rate
the pace at which the overall price level is increasing: this is the percentage increase in the price level from one period to next
60
Disinflation
A slowing rate of inflation, there is still inflation but prices are rising slow
61
Aggregate price level
single number summarizing all prices in economy **
62
Price Index
a measure that calculates the changing cost of purchasing a particular market basket each year EX: consumer price index and produce price index
63
Market Basket
combination of goods that are used to calculate a price index: consistent from year to year
64
Base year
a reference year to which variables are compared
65
real variables
variables that ARE ADJUSTED for the rate of inflation that represent the TRUE value
66
nominal variables
variables such as wages and incomes or interest that have NOT BEEN ADJUSTED TO the rate of inflation
67
Purchasing Power
what can actually be bought with money
68
Real interest rate
the interest rate that reflects the actual purchasing power of that interest
69
How to calculate CPI
(price of basket we want CPI for) / (base year price of basket) X 100
70
How to calculate the rate of inflation
inflation rate (CPI2 - CPI1) / CPI1 x 100%
71
How to calculate rate of change
(new value - old value) / old value **
72
What does CPI measure
the cost of living
73
Substitution Bias
CPI does not account for if the good's price increases a consumer can purchase more of a substitute
74
GDP deflator
a price index used to adjust nominal GDP to find real GDP
75
Unanticipated inflation
the price level increases at a faster pace than anticipated
76
Unanticipated disinflation
the price level increases at a slower pace than anticipated
77
Unanticipated deflation
when price level decreases when it was expected to increase
78
wealth redistribution
when the real value of wealth is transferred from one agent to another
79
80
lender
a agent (usually a bank) or person who makes money available to another agent they agree to be repaid (usually with interest)
80
saver
an agent that is not spending some of their income saved in saving account, bond or purchasing other financial assets
80
borrower
an agent who received money from another agent with the agreement that the money will be repaid (usually with interest)
80
bond
an asset that is a promise to pay a fixed amount at some point in the future.
80
nominal value
any economic statistic is measured in terms of actual prices
81
real value
refers to the same statistic after it has been adjusted for inflation
82
nominal GDP
the market value of the final production of goods/services in THAT year
83
real GDP
nominal GDP adjusted for changes in price level, using prices from base year instead of THAT year (current)
84
How to calculate real GDP?
(Nominal GDP) / GDP deflator (hundredths)
85
How to calculate Nominal GDP?
Real GDP x GDP deflator (hundredths)
86
If the production of all items remain the same and the prices increased from year 1 to year 2, what can we conclude from nominal and real GDP?
nominal GDP increased as the prices of the goods increased real GDP stayed the same because the production of goods is the same.
87
The amount of output doesn't change in an economy, but CPI increases what happens to nominal gross product (GDP) and real GDP
nominal GDP increases real GDP doesn't change
88
business cycle
relatively short term movement of the economy in and out of recession
89
Recession
a significant decline in national output
90
Depression
A lengthy decline or a long recession
91
The highest output before a recession is...
peak
92
The lowest point of output during a recession is called...
a trough
93
Output gap equation
current output - potential output
94
what does graphical business model show
short run fluctuations in GDP but long run increase in GDP over time
95
natural rate of unemployment equation
sum of frictional and structural unemployment
96

AP Economics (5 decks)

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