Test #2 Flashcards
(54 cards)
What is included/excluded in GDP
Included: Consumer spending, investment, government spending, exports/imports
Excluded: transfer payments, goods made out of country, etc.
What is GDP?
Dollar value of all final goods and services produced within a country’s borders in a year
Business cycles: classical vs Keynesian
Classical: normal consequence of a market economy, nothing can be done to fix it
Keynesian: corrective gov. Policies can help smooth out business cycles
Phase of business cycle
Peak- good times (low unemployment)
Downturn- starting to fall (rise in un)
Trough- low point, times bad
Upturn- output expands, gets better
What is a recession
Falling GDP for 6 consecutive months
Depression
Unemployment reaches 12%
How is unemployment measured
Unemployed/labor force= unemployment rate
Measure labor force
Unemployed+employed
What is okuns law
Unemployment rises 1% above natural rate, GDP falls 2%
Who is unemployed
Those without a job, but not looking for work
Who is employed?
Those who have a job for pay or work 15 hrs a week without pay
Who is not in the labor force
Not looking for job, military, institutionalized, retired, students, disabled or ill and can’t work.
Problems with high unemployment compensation and benefits
Makes workers less motivated to look for new job. Making enough money off benefits to not look for employment.
Drawbacks to unemployment rate statistics
Doesn’t count discouraged workers, people lying about searching for work, employes being paid under the table (don’t pay taxes, show up as unemployed)
Two types of unemployment that are unavoidable
Frictional and structural
Frictional unemployment
Naturally unemployed: person moves to be with family, employee gets fired or quits, college grad looks for work
Cyclical unemployment
Results from economic fluctuations (business troughs and downturns)
Structural unemployment
Caused by institutional structure of an economy or restructuring of the economy (technology replaces workers)
Seasonal unemployment
Due to nature of business, weather, or time of year. (Golf course, retail during holiday season..)
Employment act of 1946
Governments responsibility to have an economy where everyone who wants a job, gets one.
Classical view of unemployment
Individuals responsibility to find a job
Keynesian economist view on unemployment
Most unemployment is structural and cyclical and are more in favor of govt aid such as unemployment compensation
Calculate nominal interest rate
Units x price per unit
Calculate real interest rate
Units x base price
