Midterm 2 Flashcards
(23 cards)
substitution bias
the rise in the price of a fixed basket of goods over time
core inflation index
taking CPI and excluding volatile economic variables
PPI (producer price index)
based on prices paid for supplies and inputs by producers of goods and services
international price index
prices of merchandise that is exported or imported
employment cost index
measures wage inflation in the labor market
GDP deflator
a price index that includes all the components of GDP
balance of trade/trade balance
gap between a nation’s dollar value of its exports, and a nation’s dollar worth of imports, or the foreign made products and services that households and businesses purchase
current account balance
exports - imports of goods, services, income receipts and payments, and unilateral transfers
unilateral transfers
payments made by government, private charities, or individuals in which money is sent abroad without any direct good or service being received
national savings and investment identity
Supply of financial capital = demand for financial capital
S + (M - X) = I + (G-T)
Private savings + trade deficit = investment + government deficit
Trade deficit
M-X = I - S - (T-G)
trade surplus
X-M = S + (T-G) - I
level of trade
not balance of trade- but is exports of goods and services as a share of its GDP
hidden unempoloyment
underemployed (working at a job below their skill level) and discouraged workers (former labor force members who have given up)
cyclical unemployment
variation in en employment caused by economy moving from expansion to recession or recession to expansion
wages sticky downward
labor market model with flexible wages does not predict unemployment- wage decreases are not a thing
Natural rate of unemployment
frictional unemployment, structural unemployment,
frictional unemployment
as workers move between jobs- time taken to find a new job
structural unemployment
individuals who have no jobs because they lack skills valued in the labor market, either because demand has shifted away from their skills, or because they never learned any skills
quality/new goods bias
Problem with CPI, rise in price of fixed basket of goods overstates rise in consumer’s true cost of living, because it does not take into account how improvements in the quality of existing goods or the invention of new goods improve the standard of living
GDP
C + I + G + X - I
GDP calculation
intermediate goods (goods used to produce another good) do not form a part.
GNP
Gross national product- adds what is produced by domestic businesses and labor abroad, subtracts out payments sent home to other countries by foreign labor or firms of a country- GNP is based more on the production of citizens and firms of a country, wherever they are located
