Circular Flow
What is the circular flow model?
shows how households, businesses, and the government interact.
What is GDP?
the dollar value of all final goods and services produced within a country's borders in one year
What is cyclical unemployment?
Unemployment that results from recession in the business cycle. When demand for goods/services decreases, there is less demand for labor and workers are laid off.
What is the CPI equation?
CPI = (price of market basket / price of market basket in base year) x 100
What is the business cycle?
Shows the natural rise and fall of real GDP over time
True or false : Businesses sell goods/services to households in the product market
True
What is the expenditures approach formula?
GDP = C + I + G + Xn
Why are discouraged workers not included in the unemployment rate?
The unemployment rate includes people with jobs or those who are actively looking for work. If you aren't actively looking for work, you aren't part of the labor force.
What is the equation for the GDP deflator?
GDP deflator = (nominal GDP / Real GDP) x 100
What is an expansion?
a peak of the cycle - money is flowing and there are jobs eveywhere
True or False: Households sell resources to businesses in the resource market
True
What are the 3 transactions that are not included in GDP
Intermediate goods, non-productions transactions (used goods, stocks, etc), non market activities (illegal activity)
Total Working-Age Population 2000
Part-time Workers 200
Full-time Workers 800
Discouraged Workers 100
Unemployed 150
Total Population 3500
What is the unemployment rate?
13%
Who is hurt by unexpected inflation?
Lenders
a trough in the cycle - jobs go away, people spend less money, business struggle
Who provides public goods?
the government
Describe the GDP deflator.
A number that measures all prices and is used to convert nominal GDP into real GDP
What happens to the unemployment rate when full-time workers become part-time workers?
Stays the same
Who is helped by unexpected inflation?
Borrowers
What does the straight line through the business cycle represent?
Full employment
Draw the Circular Flow Model
Drawing
What is the difference between real and nominal GDP?
Real GDP is adjusted for inflation and expressed in constant, unchanging dollars.
Nominal GDP is measured in current prices and it does not account for inflation.
What is frictional unemployment?
Unemployment that stems from temporary unemployment or when people are between jobs
Assume the value of a market basket for 2019 is $750 and the same basket was $500 in 2017. If 2017 was the base year, calculate the CPI
CPI = 750/500*100 =150
Draw the business cycle
Drawing