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Gross Domestic Product (GDP)
dollar value of all final goods, services, and structures produced within a country's national borders during a one year period
quantity x price
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Intermediate Products (excluded from GDP)
products directly excluded from GDP computations because they are components of other final products included in GDP
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Secondhand Sales (excluded from GDP)
sales of used goods
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Foreign-Made Products (included in GDP)
foreign products made in the U.S. are counted
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Gross National Product (GNP)
total dollar value of all final goods, services, and structures produced in one year with labor and property supplied by a country's residents, regardless of where the production take place
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Personal Income
income before taxes
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Disposable Personal Income
income after taxes
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I
Business/Investment Sector
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F
Foreign Sector (Exports-Imports)
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Output-Expenditure Model
macroeconomic model describing aggregate demand by the consumer, investment, government, and foreign sectors
GDP=C+I+G+F
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Price Index
a statistic that measures changes in price over time of goods in a market price
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Market Basket
representative collection of goods and services used to compile a price index
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Formula for Price Index
new year price/ base year x 100
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Formula for Inflation
{(new year price - base year (always 100) / base year price} x 100
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Consumer Price Index (CPI)
index used to measure price changes for a market basket of frequently used consumer items
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Current Dollars
are not adjusted for inflation
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Constant Dollars
are adjusted for inflation
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Nominal GDP
gross domestic product measure in current prices, unadjusted for inflation
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Real GDP
gross domestic product after adjustments for inflation
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Contraction
this phase occurs any time real GDP is declining
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Expansion
this phase occurs any time real GDP is increasing
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Peak
point in time when real GDP stops expanding and begins to decline
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Trough
point in time when real GDP stops declining and begins to expand
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Recovery
period when the economy begins to produce more again
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Recession
a period of decline in the economy as measured by changes in real GDP
extreme recession is called a depression
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Index of Leading Indicators
a monthly statistical series that helps economists predict the direction of future economic activity
ex: length of average work week, stock prices, consumer expectations, etc.
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Unemployment Rate
ratio of unemployed individuals divided by total # of persons in the civilian labor force, expressed as a percentage
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Limitation to Unemployment Rate
- a) Part-time workers (if you work at least 1 hour a week)
- b) Discouraged workers (those people who stopped looking for a job in the past month)
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Frictional
workers are between jobs
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Structural/Technological
advances in technology reduces demand for certain skills, also caused by changes in consumer tastes
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Seasonal
results from changes in weather or demand for certain products
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Cyclical
related to changes in business cycle
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Full Employment
the lowest possible employment rate when the economy is growing and all factors of production are being used efficiently
we consider an unemployment rate of 4-8% to be full employment
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Inflation
a substantial and continuing rise in the general price level
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Demand-Pull
when people's ability to spend rises more rapidly than the availability
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Cost-Push
rising production costs cause an increase in prices
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Wage-Price Spiral
workers wanting higher pay to pay for higher priced items, employers raising the pay of employees by increasing prices
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Creeping Inflation
annual inflation rate of 1-3%
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Galloping Inflation
annual inflation rate of 100-300%
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Hyperinflation
annual inflation rate of 500% or above
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Deflation
decrease in the general level of prices in the economy (opposite of inflation)
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Purchasing Power Use
% Raise- % Inflation= purchasing power change
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Inflation Rate
(Change in Price level/beginning Price level) x 100
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Consequences of Inflation
- -when inflation occurs the dollars buys less (or lose purchasing power)
- -inflation hurts people with fixed incomes
- -inflation can cause people to change their spending habits, which disrupts the economy
- -savings worth reduced=people SPEND NOW
- -without savings economy cannot prosper
- -businesses & consumers hurt by higher interest rates
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