B-C-FM
The Business Cycles looks at the growth of __________(the Y-axis) over time.
Real GDP
What four components make up GDP?
Consumer Spending
Investment Spending
Government Spending
Net Exports
This is the type of unemployment results from being between jobs?
Frictional unemployment
CPI is used to calculate this economic indicator.
What is inflation?
Unlimited wants but limited resources available to meet those wants is called?
Scarcity
This economic agent supplies the factors of production (resources) in the circular flow model.
Households
Why doesn't GDP count used (second-hand) goods? Explain.
To avoid double counting or counting items twice.
A nation's unemployment rate is the ratio of unemployed seeking unemployment to this. (The denominator in the equation)
Labor Force
The quantity theory of money is expressed by the equation...
MV = PY
This is the best measure of a nation’s standard of living.
Real GDP per capita
The Circular Flow Model shows how money and resources are exchanged by these three economic agents/entities.
Households, Businesses/Firms and Government
What are the three categories for items NOT included in GDP?
Intermediate
Non production
Non market
Margaret doesn't have a job, and, until recently, she was looking. She is no longer looking. Margaret is characterized as this.
Discouraged
Inflation is expected to be this amount if the nominal interest rate on a loan is 8% and the real interest rate is 3%.
5%
Nominal = real + expected inflation
8% = 3% + expected inflation
If Milton, the expert video cassette maker, is unemployed recently due to the advent of DVDs, his unemployment is of this type.
Structural
The phase of a business cycle in which unemployment is at its highest point.
Trough
If Real GDP is $200 billion, then this is the value of Nominal GDP when the price index = 200.
$400 billion
This exists when the economy is experiencing no cyclical unemployment.
Full Employment (or Natural Rate of Unemployment)
These are three reasons why CPI is not a perfect indicator of economic behavior. (Problems of CPI)
Substitutes
New products
Quality
What are the shifters of the PPC? (not just the acronym but say the full shifters)
Quantity (or Quality) of the resource
Technology
Investment spending
Policy changes (like trade, which is a consumption change)
The phase of the business cycle in which GDP and inflation are on the rise.
Expansion (or Recovery)
Calculate the GDP.
Consumption: $200 billion
Defense expenditures: $300 billion
Imports: $25 billion
Exports: $50 billion
Investment: $75 billion
$600 billion
200 + 300 - 25 + 50 + 75 = 600
Reminder:
X-M (Exports minus imports).
Population: 300
Full-time: 162
Part-time: 40
Not working but searching for work: 18
Out of the labor force: 80
What is the Labor force participation rate AND what is the Unemployment rate?
LFPR = (162+40+18=220)/300 x100 = 73.3%
UR = 18 / (162+40=202) x100 = 8.2%
Assume the CPI for Year 1 is 80 and the CPI for Year 2 is 100, what is inflation rate between these two years?
25%
(100-80)=20
20 / 80 = .25 x100 = 25%
Daniel can make 10 water polo balls or 30 swimsuits or any combination thereof.
Luke can make 20 water polo balls or 40 swimsuits or any combination thereof.
Who has the comparative advantage in water polo balls and who has the absolute advantage in swimsuits?
Comparative Advantage in WPB = Luke (per unit cost is 2 vs 3 by Daniel so Luke's opp. cost is lower).
Absolute Advantage in Swimsuits = Luke as well (40 greater than 30).