Economy Unit 4

dollar value of all final goods, services, and structures produced within a country's national borders during a one year period

quantity x price

products directly excluded from GDP computations because they are components of other final products included in GDP

sales of used goods

foreign products made in the U.S. are counted

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

income before taxes

income after taxes

Consumer Sector

Business/Investment Sector

Government Sector

Foreign Sector (Exports-Imports)

macroeconomic model describing aggregate demand by the consumer, investment, government, and foreign sectors

GDP=C+I+G+F

a statistic that measures changes in price over time of goods in a market price

representative collection of goods and services used to compile a price index

new year price/ base year x 100

{(new year price - base year (always 100) / base year price} x 100

index used to measure price changes for a market basket of frequently used consumer items

are not adjusted for inflation

are adjusted for inflation

gross domestic product measure in current prices, unadjusted for inflation

gross domestic product after adjustments for inflation

this phase occurs any time real GDP is declining

this phase occurs any time real GDP is increasing

point in time when real GDP stops expanding and begins to decline

point in time when real GDP stops declining and begins to expand

period when the economy begins to produce more again

a period of decline in the economy as measured by changes in real GDP

extreme recession is called a depression

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.

ratio of unemployed individuals divided by total # of persons in the civilian labor force, expressed as a percentage

• 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)

workers are between jobs

advances in technology reduces demand for certain skills, also caused by changes in consumer tastes

results from changes in weather or demand for certain products

related to changes in business cycle

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

a substantial and continuing rise in the general price level

when people's ability to spend rises more rapidly than the availability

rising production costs cause an increase in prices

workers wanting higher pay to pay for higher priced items, employers raising the pay of employees by increasing prices

annual inflation rate of 1-3%

annual inflation rate of 100-300%

annual inflation rate of 500% or above

decrease in the general level of prices in the economy (opposite of inflation)

% Raise- % Inflation= purchasing power change

(Change in Price level/beginning Price level) x 100

• -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