GDP & Measurement
This measures the total value of all final goods and services produced in a country.
What is GDP?
A general increase in prices over time.
What is inflation?
Government use of taxes and spending to influence the economy.
What is fiscal policy?
The central bank of the United States.
What is the Federal Reserve?
A period of economic decline with high unemployment.
What is a recession?
This GDP type adjusts for inflation.
What is Real GDP?
This measures inflation using a “basket of goods.”
What is the Consumer Price Index (CPI)?
Used during a recession: increase spending, decrease taxes.
What is expansionary fiscal policy?
The interest rate the Fed charges banks.
What is the discount rate?
In a recession, the Fed should do this to interest rates.
What is lower interest rates?
This is NOT included in GDP: payments like Social Security or welfare.
What are transfer payments?
Inflation caused by too much demand.
What is demand-pull inflation?
Used to fight inflation: decrease spending, increase taxes.
What is contractionary fiscal policy?
The percentage of deposits banks must keep.
What is the reserve requirement?
In a recession, the government should do this to spending.
What is increase spending?
This formula represents GDP using expenditures.
What is C + I + G + (X – M)?
Inflation caused by rising production costs.
What is cost-push inflation?
When government spending exceeds revenue in one year.
What is a deficit?
Buying bonds to increase money supply is this type of policy.
What is expansionary monetary policy?
The Fed increases money supply by doing this with bonds.
What is buying bonds (open market operations)?
One limitation of GDP is that it does not measure this (hint: fairness of income).
What is income inequality?
Extremely rapid, out-of-control inflation.
What is hyperinflation?
When government borrowing raises interest rates and reduces private investment.
What is the crowding out effect?
Selling bonds to decrease money supply is this type of policy.
What is contractionary monetary policy?
A major risk of too much expansionary policy.
What is inflation (or high national debt)?