Definitions
Intermediate Good
A product used to produce a final good or finished product.
Market Value
MV = (Price) (Quantity)
Sum all market values to find GDP
How does the cyclical pattern of the business cycle influence unemployment?
Recession = increased unemployment
Expansion = decreased unemployment
Find the real GDP per capita of this country
Real GDP = 140,874 (millions)
Population = 32,489 (millions)
140,874 / 32,489 = 4.34 million
What is the difference between nominal and real GDP?
Nominal GDP is measured in current dollars, but real GDP is adjusted for inflation (because of price changes).
Natural Unemployment
The equilibrium unemployment in the wage-setting and price-setting model of the labor market.
Structural + frictional unemployment
DAILY DOUBLE
Income Approach vs Expenditure Approach
IA = wages + rent + interest + profits
EA = C + I + G + (X - M)
Linda was laid off from her job a year and a half ago. After searching for a job for several months, she gave up looking five months ago. Economists would classify Linda as...
A marginally attached worker, not in the labor force, and a discouraged worker.
Which statement about inflation is true?
A. Inflation is calculated as the change in the Consumer Price Index (CPI) over the previous 12 months.
B. Negative rates of inflation are also known as disinflation.
C. The price increases for all types of goods and services are the same over time, so even though our bundles of goods and services may differ, our personally experienced rates of inflation are the same.
A. Inflation is calculated as the change in the Consumer Price Index (CPI) over the previous 12 months.
Which statement about chained CPI is true? (More than 1 can be true)
A. Chained CPI reduces the biases that cause traditional CPI to slightly overstate the rise in the overall price experienced by households.
B. Whereas the bundle for traditional CPI reflects the purchases of a typical urban household, chained CPI tracks a bundle of goods and services consumed by a typical rural household.
C. Chained CPI completely eliminates the biases that cause traditional CPI to overstate slightly the rise in the overall price experienced by households.
D. Measuring inflation with chained CPI usually gives a lower rate than measuring inflation with traditional CPI.
A. Chained CPI reduces the biases that cause traditional CPI to slightly overstate the rise in the overall price experienced by households.
and
D. Measuring inflation with chained CPI usually gives a lower rate than measuring inflation with traditional CPI.
Consumer Price Index (CPI)
A price index computed by the Bureau of Labor Statistics each month using the "market basket" purchased monthly by a typical urban household. It is used to calculate the price level measure inflation.
GDP Deflator
nominal GDP / real GDP
Why is it important to know when the economy is entering a recession?
So policy makers know when to stimulate the economy with automatic stabilizers.
We want people to continue working so GDP and welfare don't take that large of a hit.
Find the rate of inflation between 2003 and 2004
2002 = 140.3
2003 = 144.5
2004 = 148.2
2005 = 152.4
[(148.2 - 144.5) / 144.5] (100) = 2.56%
What is the difference between disinflation and deflation?
Disinflation is a decrease in the rate of inflation whereas deflation is the decrease in the overall price level.
Sahm Rule
A recession indicator measuring when the 3-month moving average of the national unemployment rate rises by 0.50+ percentage points relative to its low during the previous 12 months.
Gini Coefficient
Gini = A/(A+B)
or
Gini = u + n - (1-u)(s)
The business cycle measures...
A. fluctuations in the profit of businesses.
B. long‐run fluctuations in the trend growth rate of real GDP.
C. short‐run fluctuations in economic activity as measured by real GDP.
D. fluctuations in the average tax rate paid by businesses.
E. fluctuations in consumption.
C. short‐run fluctuations in economic activity as measured by real GDP.
Do these 2 statements count as GDP and why?
A manufacturer purchases metal from a local smith to make tables and chairs.
A small business purchases new computers for their workers to complete tasks on during their shift.
1. No, the tables and chairs are intermediate goods
2. Yes, the computers are investment (I) goods.
What are examples of non market goods and services that are NOT counted in GDP?
Household production, underground economy, leisure, etc.
Lorenz Curve
Graphical representation of wealth distribution within a population. It's the % total income earned compared to the cumulative % of the population.
Rate of Inflation
[(CPI2 - CPI1) / CPI1] (100)
True or false: Importing new goods from other countries reduces the GDP of the country buying the imports.
False
What is the Gini Coefficient and is the income more or less unequal.
u = 0.10
n = 0.70
s = 0.40
g = 0.10 + 0.70 - (1 - 0.10)(0.40)
g = 0.80 - 0.36
g = 0.44 --> more equal
Will the substitution effect on a good bias CPI upward or downward? Why?
Upward, if a good becomes more expensive, CPI will overestimate the inflation measurement because it does not account for changes in buying preferences over the course of the year. One measurement per year makes it hard to incorporate.