GDP & The Circular Flow
This field of economics studies the large economy as a whole, focusing on total production and growth.
What is macroeconomics?
These goods are used as inputs to produce final goods and are excluded from GDP to avoid double counting.
What are intermediate goods?
This is the percentage of the labor force that wants a job but doesn't have one.
What is the unemployment rate?
A general rise in the overall price level that reduces the purchasing power of money.
What is inflation?
GDP adjusted for inflation, reflecting only changes in the quantity of goods and services.
What is real GDP?
This term refers to the dollar value of all final goods and services produced within a country's borders in one year.
What is Gross Domestic Product (GDP)?
Buying stocks, bonds, or used cars is excluded from GDP because these are examples of this kind of transactions.
What are non-production transactions
This occurs when people are between jobs or entering the labor market for the first time.
What is frictional unemployment?
This measures the average change in prices paid by consumers for a fixed "market basket" of goods and services.
What is Consumer Price Index (CPI)?
When an economy experiences high unemployment and slow growth.
What is a recession?
The four components in the expenditure approach and its equation.
What is C + I + G + (X - M)? (Consumer spending, investment, government spending, and net exports)
Payments like welfare or Social Security don't count towards GDP because they are this type of government outlay.
What are transfer payments?
This type of unemployment rises when aggregate demand falls during a recession.
What is cyclical unemployment?
This type of inflation happens when total demand in the economy grows faster than total supply, pulling prices upwards.
What is demand-pull inflation?
This term describes the recurring pattern of expansion and contraction in an economy over time.
What is the business cycle?
This model demonstrates that total spending in the product market equals total income received in the factor market because each dollar spent becomes someone else's income.
What is the circular flow model?
Home-cooked meals, babysitting for free, and many illegal markets are excluded from GDP because they are this.
What are nonmarket or unreported transactions?
This is the unemployment rate that exists when the economy is healthy, including only frictional and structural unemployment
What is the natural rate of unemployment (NRU)?
If someone took out a fixed-rate loan 10 years ago and inflation has been high since then, did they benefit or lose when paying it back, and why?
What is they benefited?
Inflation reduces the real value of money, so the dollars they pay back are worth less than when they borrowed.
If the nominal GDP in '03 was $75 and the GDP deflator was 150, this was the Real GDP (compared to a base year).
What is $50?
In China, the following spending took place this year:
-Consumers spent $600 billion on new goods and services
-Businesses spent $150 billion on new machinery and buildings
-Businesses spent $40 billion worth of used equipment from other firms
-The government spent $250 billion on goods and services
- Exports totaled $100 billion, while Imports totaled $150 billion
What is China's GDP?
What is $950 Billion?
(600)+(150)+(250)+(100-150) = $950 Billion
Total GDP doesn't account for population size, so economists use this adjusted measure to more accurately compare how well people live across nations.
What is GDP per capita?
In a country, there are 200 million people in the working-age population. Out of these people, 140 million are employed and 22 million are unemployed. What is the unemployment rate?
What is 13.6%?
(22/162)(100)=~13.6%
A market basket costs $180 in the base year. In Year 1, it costs $200, and in Year 2, it costs $220. This percent is the inflation rate from Year 1 to Year 2.
What is ~10%?
A country's nominal GDP rises from $1.5 billion to $1.62 billion, while the GDP deflator rises from 100 to 105. This is the approximate percentage change in real GDP.
What is ~2.9%?
Real GDP 1: (1.5/100)(100) = 1.5 Billion
Real GDP 2: (1.62/105)(100) = 1.54286 Billion
Growth = (1.54286 - 1.5)/(1.5) (100)= 2.8573
= ~2.9%