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GDP definition

The dollar value of all goods and services produced within a countries borders in a year


Things not included in GDP calculation

Intermediate goods - things that go into the making of a final product.

Non production goods - stocks and share trading

Illicit activities


GDP Calculation (expenditures)

GDP = C+I+G+(X-M)


Unemployment rate definition

The percentage of people in the labour force who want a job but are not working

Labour force - people above 16 able and willing to work

(Total unemployed/Total in labour force)x100


Frictional unemployment

People who are in between jobs
Qualified worked with transferable skills


Seasonal unemployment

Specific type of frictional unemployment that depends on the time of year(ski instructor for example)


Structural unemployment

Changes in the economy where jobs are no longer needed. Think self service desks.
Workers must learn a new skill to get a job.


Cyclical unemployment

Economy has entered the recessionary stage in the business cycle and people are losing their jobs. Aggregate demand falls and therefore so does the need for labour.


Natural rate of unemployment

Made up of structural + frictional unemployment.
This is the amount of unemployment that exists when the economy is in a healthy state.


Criticisms of the unemployment rate

Discouraged workers - unemployed but have given up looking for a job

Underemployed workers- Part time workers - they are considered to be fully employed by the unemployment rate but still want more work for themselves.


Nominal wage vs real wage

Nominal wage is wage measured by dollars rather than purchasing power. If you get 5EUR in wages but inflation goes up 10%, you cant buy the same as before

Real wage factors in inflation - they will pay you 5.50EUR instead


Consumer Price Index

Best way of measuring inflation.

Base year set at 100, each year is compared to it.

CPI = (Price of basket/Price of market in base year)*100


GDP Deflator calculation

Nominal GDP/Real GDP*100


Reasons for inflation

The quantity theory - Government prints to much money -

M=Money supply
V=Velocity (average time dollar is spent and respent in a year)
P=Price level
Y=Level of output

Demand pull inflation
Too much demand for too few goods - excessive spending on he same goods.

Cost-Push inflation
Higher production costs drive up prices - due to a negative supply SHOCK.