Circular Flow Model
These are the 2 players in the simplified circular flow model
Households and Firms
Someone who does not have a job, and is not looking for one may cause us to understate this
Unemployment Rate
This is the vocab word for prices going down over time
Deflation
A value is called "real" because it does this.
Adjusts for inflation
This is what GDP stands for
Gross Domestic Product
This transfer of money is the incentive for labor
Wages
These are the three types of unemployment
Structional, Frictional, and Cyclical
The ratio between the market basket in the current year divided by the market basket in the base year, times 100.
CPI (Consumer Price Index)
This is the inflation rate formula.
(Price index in year 2 - Price index in year 1)/Price index in year 1 x 100
This is the expenditure approach formula used for calculating GDP
C + I + G + (X-M)
Give an example of a leakage from the circular flow model. This is something that makes money "leak" or leave the circular flow money flow.
Savings, imports, and destruction of money
This is the difference between actual and natural unemployment rates
cyclical unemployment
In this year, the nominal value = real value
base year
When inflation rates go up, this is who wins out of lenders and borrowers.
Borrowers with fixed-rate loans.
Name one thing that is not included in the calculation of GDP that causes it to understate the welfare of a counties economy
Housework, Volunteering, Leisure Time, or Natural Beauty
What do firms provide to households in the circular flow model?
Goods and services
employed divided by the labor force
labor force participation rate
A CPI of 120 indicates that the economy has experienced this rate of inflation since the base year
20%
What is the formula for the GDP deflator?
(Nominal GDP/Real GDP) × 100
How are inventory changes treated in GDP calculations?
They are counted as investment spending
What is the role of the government in the circular flow model?
It collects taxes and provides public goods and services
During this stage of the business cycle, unemployment will fall
Expansion
Who counts as being part of the labor force?
those in the civilian non-institutional population, age sixteen years or older, who are employed or who are unemployed and seeking employment.
Calculate the inflation rate from 2012-2013:
Year CPI
2012: 229.6
2013: 233
1.48%
James was born in England, grew up in the united states, lives in Mexico and ordered a new bike. The bike was built in China, shipped first to a shipping center in Canada, before ultimately being delivered to James' doorstep. This transaction will count in which countries GDP?
China