Define Nominal GDP
GDP based on prices prevailing at the time of production
How do we account for prices changes?
Price Indexes and Base year
A Price index is a _____?
a number that shows the average price of products;
True or False
The base year =100
The United States government uses the ______________ as a measure of inflation based on the cost of a fixed basket of goods and services.
Consumer Price Index (CPI)
How do we determine Price Index?
Price Index = 100 X (Price incurrent year / Price in base year)
What some of the faults of the CPI?
Does not take into consideration changes in quality and therefore it may overstate inflation.
CPI over states inflation because it does not follow the substitution from more expensive goods to cheaper goods
What do experts state about CPI?
Estimated that the CPI has overestimated inflation by about 1% per year.
The GDP Price Index measures
A price index for ALL goods and services.
Define GDP Price Index
A comprehensive inflation measure of all goods and services included in gross domestic product.
GDP (Gross Domestic Product): measures the _____________ of all final goods/services produced __________ during a given time period
Calculating GDP by adding up spending on all final G&S produced during a given period of time
Expenditure Approach to GDP
Calculating GDP by adding up all earnings from resources used to produce output in a given period of time
Income approach to GDP
Goods and Services sold to final, or end, users
Final Goods and Services
Give an example of intermediate goods and services
Grocer buys a can for $ 0.60 and sells it for $ 1.00.
Intermediate goods and services are ____________________?
Purchased by firms for further reprocessing the resale.
Consumption is defined as?
household purchases of final G&S except for new residences which count as investment
Investments can be defined as?
The purchases of new plants, new equipment, new buildings and new residences, plus net additions to inventories.
Government can be defined?
spending on behalf of the government.
GDP = C + I + G + NX
is an equation to get?
What is aggregate expenditure?
Total spending on final goods/services in an economy during a given period.
Net Exports can be defined as:
The value of a country's export minus imports
Aggregate Income can be defined as?
All earnings of resources in an economy during a given period time period.
The income house holds have available to spend or save after paying taxes and receiving transfer payments.
Taxes minus tranfer payments = _______?
Net Taxes (NT)
True or False
Disposable Income + Net Taxes= Aggregate Income=GDP
_______=C + I + G+ (X-M) =________
Some production is not included in GDP such as home production. This is an example of ?
Limitations of National Income Accounting
Drugs, black markets, undocumented workers are examples of
True of False
Leisure is not bought or sold in the market
True or False
GDP does take into consideration depreciation of physical capital
Net investment is?
Gross Investment minus depreciation
GDP minus Depreciation Gross Investment the value of investment during a year is?
Net domestic product
The value of the capital stock used up to produce GDP or that becomes obsolete during the year.
we begin with U.S. civilian non-institutional adult population.
Who are not included in unemployment?
Government or Military
Prisoners and mental hospitals
Define Labor force
Those 16 years of age and older who are either working or looking for work
Unemployment rate can be defined as?
the number unemployed as a percentage of the labor force.
What is the BLS and their function?
Bureau of labor statistics. They count people as unemployed if they have no job but want one and have looked for a job in the past 4 weeks.
Those who drop out of the labor force in frustration because they couldn't find work.
The average unemployment rate from 1948 - 2009 was _____________?
The Unemployment rate during the great depression was?
unemployment that occurs because of job seekers and employers need time to find each other is?
unemployment caused by seasonal changes in the demand for certain types of labor
Structural unemployment consist of ________?
the skills demanded by employers do not match those of the unemployed
the unemployed do not live where the jobs are
unemployment that fluctuates with the business cycle, increasing and decreasing during expansion
Define Full Employment
employment level when there is no cyclical unemployment
True of False
Official Unemployment figures include anyone who is NOT employed
False. Official Unemployment does NOT count discouraged workers as unemployed under states unemployment
Define Under employment
workers are overqualified for their jobs or working fewer hours than one would prefer.
a sustained increase in the economies average price level.
What occurred Hyper inflation in Brazil?
(1988-1994) prices rose over 3.6 million times higher than
What causes hyper-inflation?
Excessive printing of money (qualitative easing)
a sustained decrease in the price level
Name the two sources of inflation. Explain.
Demand- Pull inflation.
Cost push inflation is usually generated by an increase in resources. (Stagflation in the 1970's).
reduction in the rate of inflation
the dollar amount paid by borrowers to lenders
Interest rate is defined as?
Interest per period as a % of the amount loaned.
Nominal Interest rate
the interest rate expressed in dollars of current value as % of the amount loaned
Real Interest rate
the interest rate expressed in dollars of constant purchasing power as a percentage of the amount loaned.
How do we obtain Real Interest Rate?
Real interest rate=nominal interest rate - rate of inflation