Whole Class
This model shows the relationship between firms, households, and the government for exchanging goods and services
The Circular Flow Model
The dollar value of all final goods and services produced within a country in one year
Per person
CPI is calculated with by adding up 80,000+ everyday household items, pilled together in a mechanism called a what?
Who provides resources to the resource market according to the circular flow model?
Individuals and businesses
What part of GDP has the heaviest contribution?
Consumption (70%)
Why is GDP per capita a better measurement than just measuring total GDP?
It accounts for the size of the population
Inflation Rate =
New CPI - Old CPI (Base)
_____________________ X 100 = 20%
Old CPI (Base)
What are the 3 key limitations of CPI as a metric to measure the health of an economy on it's own?
1. Substitution Bias
2. New products / inventions
3. Change in product quality within the market basket
T or F: If someone who lives on social security gets their $1,000 check and spends it at the grocery store, it's not counted towards GDP
False.
Spending money on new and final goods such as those at the grocery store counts as consumption in the GDP calcuation
Give me the entire Expenditure Approach Formula
GDP (Y) = C + I + G + (X-M)
Tell me what pieces of data make up the Natural Rate of Unemployment
Frictional and Structural Unemployment
When someone's purchasing power is reduced by a steady increase in prices from year to year, what are they experiencing?
Inflation
Why is inflation bad for an economy when it comes to a key part of what makes up total GDP?
Reduces investment
Contrast Real and Nominal GDP
Real = $ values adjusted for inflation
Nominal = $ current , not adjusted
Assume that the USA's GDP not adjusted for inflation is $200 million. But after economics review inflation, the real GDP is said to be $150 million. Calculate what the GDP Deflator would be to get us the true value of GDP.
GDP Deflator =
Nominal GDP
____________ X 100 = 133.33
Real GDP
What defines a recession?
A 6-month period of decline in Real GDP
Who is typically hurt by unanticipated inflation and why?
Lenders, because if they don't charge enough interest on a loan, they will have less purchasing power of the money they get back compared to what they originally loaned out.
In 2006, the market basket of the USA was $50 billion. Fast forward to 2026, the market basket grew to $100 billion. Calculate the CPI with the assumptions that 2006 is the base year and 2026 is the current year.
CPI =
Market Basket of the Current Year
____________________________ x 100 = 50
Market Basket of the Base Year
When someone loses their job due to being replaced by AI robotic arms at the local car plant, where they are not as productive as the robot. What kind of unemployment does this display?
Structural / Technological
Baking goods at of one's kitchen to sell those goods to your neighbors for a profit without an LLC is not accounted in GDP, what category does this fall under?
Non-market activities
Give a key example of government spending that counts and does not count towards GDP.
Counts = infrastructure projects
Does not = transfer payments
Think of China
1. People forced to be productive.
2. Government system.
3. Destructive environment / poor quality of living.
Someone decided to accept a new job, has to wait 2 weeks to start, but during that 2 weeks, they are surveyed for the BLS for unemployment data. What kind of unemployment would this be considered at the time of the survey?
Frictional
CPI = products can be made from anywhere in the world
GDP Deflator = products have to be made within that countries borders, true GDP.