econ study guide test 1

• short for real gross domestic product
• total value of all final goods and services produced during a particular year or period that is adj to eliminate effects of changes in prices

• series of expansions and contractions of the real GDP
• begins at peak continues thru a recession, a trough and expansion new cycle begins at next peak

point of business cycle at which expansion ends & a recession begins

sustained period in which the real GDP is falling from the peak to trough

• point at which recession begins and expansion begins
• real GDP starts to rise

• from trough to peak
• a rise in real GDP until it peaks at which time the new cycle begins

• current cost of basket divided by base period cost of basket
• base period always has a price index of 1

• 1. select kinds & quantities of goods & services to be included (a market basket)
• 2. determine what it would cost to buy them in some period (base period) for comparision often 1 year
• 3. compute cost of market basket in current period
• 4. compute price index (current cost/base period cost)

current cost of basket / base period cost of basket

published often multiplied by 100

time period against which costs of market basket in other periods will be compared in computing price index is always at 1

• price index reflects changes in prices of goods & services typically purchased by consumers
• change in cost of living (same as PI)

measure of average prices received by producers for raw materials, intermediate & final goods

• price index for all final goods & services produced
• ratio of nominal GDP to Real GDP
• most board based price index available

• % rate of change in price index between 2 periods
• (price index for current period - price index for base period)/price index for base period

• value expressed in units of constant purchaing power always at the base period
• nomial value $/price index of base period

value expressed in dollars of the current period

• defined as all residents over the age of 16 who are not institutionalized and looking for work or working
• employed + unemployed but looking for work

• unemployed but looking for work/labor force
• % of labor force unemployed

short term, usually because workers and employers have to find one another

• reflects imperfect match up of employee skills & skill requirements of available jobs or permanent reduction in demand for industry's output
• can be cuased by advancements in technology

product of business cycle flucutations increases during recession and decreases during growth of economy

product of regular, recurring changes in hiring needs of certain industries on monthly or seasonal basis (retail sales during non holiday season)

workers who have looked for work in the past year but stopped because they believe they will not be hired

employement of workers in jobs that do not utilize productive skills

employment level at which quantity of labor demanded equals quantity supplied

excluded cyclical unemployment

• market value of final goods and services produced within a country during a specific time period, usually a year
• (only final goods and services count, excludes financial transaction & income transfers, within the geographic boundaries and net additions to inventory are current period output so included)

sum of the intermediate goods used to produce the final output

• sum of amount each sector spends on final user goods & services
• personal consumption expenditures (C)
• gross private domestic investment (I) not stock
• goverment purchases of goods & services (G)
• net exports (X) (exports - imports)
• GDP = C+I+G+X

• adding up the income of all sectors
• wages (including benefits)
• interest (net interest paid by business plus net interest received from foreigners)
• rent (earned from seeling use of real estate
• profits (sum of corporate profits plus proprietors income)
• Capital Consumption Allowance (depreciation of capital goods plus value of accidental damage to capital goods)
• indirect business taxes (taxes collected by business & turned over to governments)
• Statistical discrepeancy (miscellaneous money allowing GDP to equate with GDI (Gross Domestic Income)

• total value of final goods & services produced during a given period by citizens of country no matter where they live (goods & services are produced by the "nationals" of the country)
• GDP + foreign nationals production

• GNP net of depreciation, includes net investment instead of gross investment
• (gross investment minus CCA (capital consumption allowance - depreciation))

• NNP less statistical discrepancy
• measure of income payments that actually go to resources

national income plus income currently received but not earned minus income currently earned but not received

personal income (PI) minus personal taxes

measure of national output based on current prices of goods & services

measure of quantity of final goods & services produced, obtained by eliminating the influence of price changes from nomial GDP statistics

flow variable measuring value of goods & services purchased by households during time period

value of all goods produced for use in production of other goods & services; expenditures by buesiness on assets, on new residential houseing & changing in business inventories

purchases of goods & services plus output produced by government agencies (does not include SS, welfare & unemployment compensation (transfer payments))

total sales of goods & services to buyers elsewhere in the world minus imports from foreign countries

GDP minus depreciation

real does not record items produced but not exchanged like a periosn preparing own dinner, or bartering & unreported income

spending by firms to buy capital or produce inventory or on new residential housing

relationship between real GDP & price level (implicit price deflator)

• graphical representation of aggregate demand
• shows relationship between total quantity of output demanded (measured as real GDP) & price level (implicit price deflator) with neg relationship between price level & total quantity of goods/services demanded suggesting ordinary demand curve

change in real GDP demanded at each level divided by initial change (in components of AD)

multiplier times inital change

total supply of goods & services at given price level

vertical line where AD & AS meet at a certain price level (is potential output)

quantity of goods & services supplied, decrease/increase in price of natural resources

any of the factors in GDP

tendency for change in price level to affect real wealth and thus alter consumption

tendency for change in price level to affect interest rate & thus affect quantity of investment demanded

level of output an economy can acheive when labor is employed at its natural level

increase in AD

decrease in AD

increase in AS

decrease in AS

price that is slow to adjust to equilibrium level creating sustained periods of shortange or surplus

same as price index (nominal GDP)/(real GDP) all times 100