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Flashcards in Macro Quiz 2 Deck (57):
1

GDP

Total output or total income or total spending in entire economy

2

GDP per capita

Average income per person

3

Recession

Significant decline in GDP or economic activity

4

Depression

A large recession

5

Unemployment

Those wanting a job and don't want one

6

Labor Force

All employed and unemployed workers

7

Discouraged workers

People who want to work but give up trying because of poor labor market

8

Cyclical Unemployment

Unemployment related to the business cycle

9

What is an example of cyclical unemployment?

Recession

10

Structural Unemployment

Mismatch of what employers are looking for and what employees have

11

What is an example of structural unemployment?

Manufacturing jobs

12

Frictional Unemployment

Includes people that are just entering the workforce or people who leave their jobs and look for better ones

13

What does C stand for in C + G + (I-E) + i Equation?

Consumer spending

14

What does G stand for in C + G + (I-E) + i Equation?

Government Spending

15

What does (I-E) stand for in C + G + (I-E) + i Equation?

Net Exports

16

What does i stand for in C + G + (I-E) + i Equation?

Investment

17

Output

All goods and services in the economy

18

What are the 5 shortcomings of GDP?

Does not explain technological change
Does not show inequality
Does not show time cost
Does not include pollution as a result of activity
-Just because we produce more, does not mean people are better off

19

What is an example of GDP not accounting for technological change?

Free apps

20

What is an example of GDP not accounting for inequality?

Many people can be in poverty despite a high GDP

21

What is an example of GDP not accounting for time cost?

I cleaned the dishes but that value is not included

22

What is an example of the GDP shortcoming of when we produce more does not mean we are better off?

Hurricanes result in many new homes

23

Inflation

When prices increase

24

Inflation Rate

the percent change in prices

25

What are 3 reasons that Aggregate Demand is downward sloping?

Interest rate effect
International effect
Money wealth effect

25

Interest Rate Effect

If price increases, then the value of the dollar decreases because people cannot buy as much

25

International effect

If price increases in the United States, exports decrease because goods are more expensive relative to other countries. Therefore, imports increase.

26

Recessionary Gap

When actual output is below potential output

27

Inflationary Gap

When actual output is above potential output

28

What is an example of a countercyclical policy?

Reducing government spending and raising taxes during a boom

29

What does marginal propensity to consume stand for?

MPC

30

Marginal propensity to consume

How much of each dollar is spent
- As income increases, MPC decreases

31

Multiplier effect

Change in government spending leads to a change in output

32

What 4 things affect Aggregate Demand?

Consumer Spending
Investment
Government Spending
Net Exports

33

What happens to government spending when there is an increase in price level?

The government will reduce spending to control price level during the boom

34

What are 3 ways GDP per capita fails as a measure of well being?

Does not show economic inequality
Does not show social inequality
Does not account for pollution

35

Why doesn't GDP per capita show economic inequality?

Can still be a large number of people in poverty even if GDP per capita is high

36

Why doesn't GDP per capita show social inequality?

African Americans are often discriminated in United States despite high GDP per capita

37

Why doesn't GDP per capita account for pollution?

In China the air is really polluted regardless of GDP per capita

38

Growth

Increases in output and income

39

As a result, what does growth increase?

Standard of living

40

When growth increases income, what 2 positive things happen?

Can afford more things
Results in higher life expectancy

41

What are the 5 sources of growth?

Growth compatible institutions
Investment and Accumulated Capital
Available Resources
Technological Development
Entrepreneurship

42

What are 2 examples of growth compatible institutions?

Markets
Private Ownership

43

Growth Compatible Institutions

When people gain from growth, they are more likely to work harder

44

Investment and Accumulated Capital

Taking savings and putting them towards something in the hopes of getting a greater return

45

What is an example of Investment and Accumulated Capital?

Stock Market

46

Available Resources

The more resources you have, the more you can produce

47

Technological Development

When technology develops, it allows resources to be used more efficiently

48

Entrepreneurship

Ability to get things done

49

What is an example of Entrepreneurship?

Starting a business

50

Institutions

Formal and informal patterns, rules and regulations of behavior

51

What are 4 examples of institutions?

Investing
Technological Advancements
Markets
Entrepreneurship

52

Human Capital

People ability to perform or produce something

53

Physical Capital

Consists of land, buildings, equipment or machines

54

What does physical capital enable?

Enables production process

55

Social Capital

The need of others to produce a good

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