Economic Growth
What does per capita mean?
per head
The rate of US economic growth is steady/unsteady?
instead
What is unemployment rate?
percentage of the labor force that is looking for a job but can't find one
What is inflation?
general price level rises
When has inflation been high in US history? x3
WW1, WW2, 1970s
What are capital goods?
long-lived goods that are used to produce other goods
Kuznets pointed out that this good can be viewed as an intermediate good
national defense
What is residential fixed investment?
purchase of new homes
The CPI usually understates/overstates inflation
overstates
When did sustained economic growth begin in the US and W Europe?
two centuries ago
What is savings?
people have more money than they want to spend so they put it somewhere
In a closed economy how are savings and investment related?
S=I
S = I + NCO
What is output per person called?
GDP per capita
The Great Depression
Who makes up the labor force?
employed + unemployed
Inflation increases/reduces purchasing power.
reduces
Since the early ___, inflation has been low.
1980s
Are capital goods counted in GDP?
T/F: Services such as housekeeping and childcare are bot counted in GDP.
true
What are inventories?
addition of unsold goods to business inventories
What 3 factors cause CPI to overstate inflation?
substitution bias
unmeasured quality change
new goods and services
When did sustained economic growth begin in Japan and L America?
late 1800s
What is investment?
the purchase of new capital equipment
What is the equation for private saving?
What is savings in terms of Y, C, and G?
S = Y - C - G
positively
The sharpest increase in economic output in US history
WW2
When the unemployment rate is up it's easier/harder to find work
harder
Inflation makes people better/worse off
worse
Trade deficit
imports > exports
GDP only counts goods produced where?
within the borders of a country
What demographic has increasingly entered the labor force in recent years?
women
What is government purchases?
all the goods and services purchased by all levels of government
CPI overstates the cost of living by __%
1.3
What does the circular flow model trace?
the flow of dollars through the economy
What is the role of financial institutions?
coordinates saving and investment
What is the equation for government saving?
T - G
What determines the rate of savings in the economy?
real interest rate
32
When unemployment is high it's easier/harder to get a promotion
harder
low
Trade surplus
T/F: foreign-owned companies that produce goods in the US are counted in US GDP.
true
Economists divide purchasers into four categories:
household, firms, governments, foreign sector
What kind of payments are not counted in G?
transfer payments
Who calculated the amount CPI overstates inflation by?
Michael Boskin
What are the 3 major actors in a domestic economy?
households, firms, government
What are bonds?
company borrows directly from the public
During a budget surplus, what is true about T - G?
it's positive
People save more when the interest rate is higher/lower
higher
When was the Great Depression?
1929 to 1933
What is a trough?
The least economic activity in the business cycle.
During a recession what happens to unemployment?
increases
Inflation has been low since what decade?
1980s
The US ran a trade surplus until what decade?
1950s
Economists make GDP calculations for what two time contexts?
annually, quarterly
Since goods that are produced are always purchased, we can also think of GDP as the sum of __
expenditures
What equals exports - imports?
net exports
What is the GDP deflator equation?
100 * nominal GDP / real GDP
What measures output but is not affected by population?
GDP per capita
What are stocks?
the public invests in a company
During a budget deficit, what is true about T - G?
it's negative
What is the principal motive for saving?
more consumption in the future
When was the American involvement in WW2?
1941-1945
What is an expansion?
period between a trough and peak
During an expansion what does unemployment do?
decreases
Prices have risen slowly but consistently since what decade?
1940s
The US has run a trade deficit since what decade?
1970s
Although the sale of an old house doesn't count in GDP, the realtor's __ does count.
commission
Household purchases are called what?
consumption
What is the equation for GDP?
Y = C + I + G + NX
What's less volatile: CPI or GDP deflator?
GDP deflator
How are GDP per capita and GDP per worker related?
GDP per capita = GDP per worker * labor force participation rate
stocks
When a government runs a deficit it __ investment in the economy.
reduces
Low interest rate and __ can discourage savings
expected inflation
During WW2, the American economy's production did what?
increased
What is a recession?
period between a peak and trough
Why does the unemployment rate never reach 0?
there's always people looking for a new job
What links national economies together?
international trade
What is the combination of many things into one economic variable?
aggregation
When was GDP first developed?
1930s
consumer durables
consumer nondurables
services
What is the identity equation for GDP?
GDP = production = expenditures = income
Why is the GDP deflator less volatile?
it only measures domestic goods
Variation in GDP per capita is mainly due to what?
differences in average labor productivity
Are stocks or bonds more risky?
stocks
What is net capital outflow?
sale of domestic goods to foreigners - purchase of foreign goods by citizens
Why do business invest?
they think that spending money on equipment now will increase revenue in the future
During the Great Depression the US economy's production did what?
decreased
What is a depression?
a severe recession
Is unemployment increasing in the long run in the US?
no
What is a trade surplus?
exports > imports
macroeconomics
Who made the first proto-GDP system?
Sir William Petty
What category does buying a new house fall under?
investment
What is nominal GDP?
GDP calculated in current year prices
60 000
Why has US labor force participation rate recently increased?
more women in the workforce, less kids
What are financial intermediaries?
a third party who links the money from one person to another
If a British company purchases an American one, what happens to NCO?
decreases
New tech causes the demand for savings to increase/decrease.
increase
In the grand scale, do short-run fluctuations matter?
no
What is the business cycle?
Alternation of expansions and recessions
What is cyclical unemployment?
unemployment due to the business cycle
What is a trade deficit?
exports < imports
What is "the market value of all final goods and services produced in a country during a specific period of time"
When did Sir Petty make his system?
mid-1600s
What are two examples of consumer nondurables?
food, clothing
What is real GDP?
GDP calculated with a base year prices
What is US labor force participation rate (roughly)?
66%
Why has the US labor force participation rate decreased recently?
longer education, earlier retirement
How do banks work?
people deposit money and the bank lends some of that money to other people
If Intel builds a factory in Taiwan, what happens to NCO?
increases
The government running a deficit makes the quantity of savings increase/decrease
decrease
One common reason for rising levels of production is
increases in population
During a recession what do employment and inflation do?
both decrease
What is frictional unemployment?
unemployed people who are looking for jobs and will get one quick
Levels of import and exports move in the same/different directions.
Same
Goods that have higher prices should contribute more/less to total output
more
What economist made the first GDP formula?
Simon Kuznets
Name 3 types of services
education
legal
financial
How often is CPI calculated?
every month
What demographic has the lowest employment?
teenagers
What 5 things affect average labor productivity?
physical capital, human capital, natural resources, tech knowledge, political/legal context
What are mutual funds?
people invest in a porfolio of stocks/bonds managed by a professional
What are the two types of NCO?
foreign direct investment, portfolio investment
What is crowding out?
government borrowing a lot of money causes private investment to decrease
The US population has increased by a factor of __ since 1900
What fiscal policy can fix a recession?
lower taxes / higher government spending
What is structural unemployment?
a mismatch between worker's skills and what employers need
International trade makes every participant what?
better off
Goods that are used up in the production of a final good.
intermediate goods
When did Kuznets make his system?
1932
spending by firms on final goods and services falls under what category?
investment
Who calculates CPI?
US Bureau of Labor Statistics
Frictional unemployment
What is the type of unemployment that refers to natural matching of employees and employers?
Why should investment only be done up to a point?
investment means you're not spending now so you can't invest everything
What 2 reasons do people invest in mutual funds?
They can diversify and let a professional do all the work
What is foreign direct investment?
a company gets assets in a foreign country that it will manage directly
A government tax credit for savings will __ the supply of savings
increase
The real output per person in the US has increased by a factor of __ since 1900
8
Who sets fiscal policy in the US?
The Treasury Department
What was the max unemployment rate in US history?
23%
In the US, which is greater: imports or exports?
Excluding intermediate goods from GDP ensures that it is not affected by what?
the level of vertical integration
What award did Kuznets win?
Nobel Prize in Econ
What are the 3 categories of investment?
business fixed investment
residential fixed investment
inventories
What survey makes the CPI?
Consumer Expenditure Survey
Structural unemployment
What is the type of unemployment that results as a mismatch between skills?
Knowledge is what kind of good?
public good
Banks serve society by being financial intermediaries and __
providing checking accounts to facilitate purchases
What is portfolio investment?
a company buys stocks/bonds issued by a foreign company
An increase in supply of savings would cause interest rate to increase/decrease.
decrease
What is total output divided by number of workers?
average labor productivity
What is US GDP per capita approximately?
$65,000
What is the natural rate of unemployment in the US?
4-5%
What is the average inflation rate in US history?
2-3%
Sylvia produces $200 of tomatoes, sells $100 at a farmers market, then uses the other half to make tomato sauce that she sells for $200. What is her total contribution to GDP?
$300
What are the 3 limits of GDP?
– what counts as final goods?
– it doesn't include non-market goods
– ignores depreciation
What is business fixed investment?
business purchases of factories, offices, equipment, etc.
CPI equation?
100 * cost in year t / cost in base year
Cyclical unemployment
What is the type of unemployment that occurs as a result of recessions and business cycle?
Why is Saudi Arabia so rich?
naturel resources
Financially shaky companies sell bonds with a higher/lower interest rate.
higher
In an open economy how are NCO and NX related?
NCO = NX
Supply and demand of savings depends on real/nominal interest rate?
real