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What is the formula for the expenditure approach to determining the GDP?
- G-I-C-E
- + Goverment spending
- + Investment
- + Consumption
- + Exports (net)
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What is the formula for determining the unemployment rate
- (Number of unemployed / total labor force) * 100,
- where total labor force includes the employed+unemployed
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What is frictional unemployment?
The time spent between jobs looking for a new job.
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What is structural unemployment?
People who can't find a job either because they do not have the skills, or do not live where the jobs are located.
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What is cyclical unemployment? When is this (+) vs (-)?
Changes due to expansion or contraction of the economy (chg in real GDP). It's (+) when employment is below full employment, and (-) when above full employment.
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What is full employment? What isn't full employment?
- Full employment is when there is no cyclical unemployment and the economy is operating on the production possibility curve.
- It doesn't mean there's no unemployment b/c some people still quit voluntarily to find another job, or structural unemployment exists.
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What is the formula for calculating CPI?
(Current cost of market basket / base yr cost of the same market basket) * 100
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What is the formula for the inflation rate?
(CPI this period-CPI last period / CPI of the last period) * 100
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What are the 3 methods used by the government to expand monetary policy and what is the effect?
- Effect: increases AD, increases GDP, increases prices (some inflation), decreases unemployment
- * Using open market operations to repurchase treasury bonds
- * decrease the discount rate to decrease the overall interest rate
- * decrease the required reserve ratio
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What are the 3 methods used by the government to contract monetary policy and what is the effect?
- Effect: reduce AD, GDP decreases, decrease prices (reduce inflation), increase unemployment
- * use open market operations to sell treasury bonds
- * increase the discount rate
- * increase the reserve ratio
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Which will likely cause a increase in the amount of frictional unemployment and why? (1) an increase in the avg age of the workforce, or (2) a decrease in the avg age of the workforce
(2) a decrease as younger people tend to change jobs more frequently
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A lender borrowed money at 3% interest for 1 yr and paid $1,030 at the end of the year. There was 2% inflation. What is the amount worth in real terms?
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