Economy Unit 4

  1. 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
  2. Intermediate Products (excluded from GDP)
    products directly excluded from GDP computations because they are components of other final products included in GDP
  3. Secondhand Sales (excluded from GDP)
    sales of used goods
  4. Foreign-Made Products (included in GDP)
    foreign products made in the U.S. are counted
  5. 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
  6. Personal Income
    income before taxes
  7. Disposable Personal Income
    income after taxes
  8. C
    Consumer Sector
  9. I
    Business/Investment Sector
  10. G
    Government Sector
  11. F
    Foreign Sector (Exports-Imports)
  12. Output-Expenditure Model
    macroeconomic model describing aggregate demand by the consumer, investment, government, and foreign sectors

  13. Price Index
    a statistic that measures changes in price over time of goods in a market price
  14. Market Basket
    representative collection of goods and services used to compile a price index
  15. Formula for Price Index
    new year price/ base year x 100
  16. Formula for Inflation
    {(new year price - base year (always 100) / base year price} x 100
  17. Consumer Price Index (CPI)
    index used to measure price changes for a market basket of frequently used consumer items
  18. Current Dollars
    are not adjusted for inflation
  19. Constant Dollars
    are adjusted for inflation
  20. Nominal GDP
    gross domestic product measure in current prices, unadjusted for inflation
  21. Real GDP
    gross domestic product after adjustments for inflation
  22. Contraction
    this phase occurs any time real GDP is declining
  23. Expansion
    this phase occurs any time real GDP is increasing
  24. Peak
    point in time when real GDP stops expanding and begins to decline
  25. Trough
    point in time when real GDP stops declining and begins to expand
  26. Recovery
    period when the economy begins to produce more again
  27. Recession
    a period of decline in the economy as measured by changes in real GDP

    extreme recession is called a depression
  28. 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.
  29. Unemployment Rate
    ratio of unemployed individuals divided by total # of persons in the civilian labor force, expressed as a percentage
  30. 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)
  31. Frictional
    workers are between jobs
  32. Structural/Technological
    advances in technology reduces demand for certain skills, also caused by changes in consumer tastes
  33. Seasonal
    results from changes in weather or demand for certain products
  34. Cyclical
    related to changes in business cycle
  35. 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
  36. Inflation
    a substantial and continuing rise in the general price level
  37. Demand-Pull
    when people's ability to spend rises more rapidly than the availability
  38. Cost-Push
    rising production costs cause an increase in prices
  39. Wage-Price Spiral
    workers wanting higher pay to pay for higher priced items, employers raising the pay of employees by increasing prices
  40. Creeping Inflation
    annual inflation rate of 1-3%
  41. Galloping Inflation
    annual inflation rate of 100-300%
  42. Hyperinflation
    annual inflation rate of 500% or above
  43. Deflation
    decrease in the general level of prices in the economy (opposite of inflation)
  44. Purchasing Power Use
    % Raise- % Inflation= purchasing power change
  45. Inflation Rate
    (Change in Price level/beginning Price level) x 100
  46. 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
Card Set
Economy Unit 4
Measuring the National Economy