GDP

If the inflation rate simply slows (e.g., from 2% to 1.5%)

there is still inflation because the price level increased, just not as much. This is what economists call "disinflation."

In general, a "recession" is defined as

two consecutive quarters of decline in real GDP

If average U.S. growth was 3% per year

would have hit current living standards in 1917

Discouraged workers are considered

"marginally attached" to the labor force - they move in and out of the labor force as they search and stop searching for a job.

A discouraged worker is considered by the Bureau of Labor Statistics as

"not in the labor force" because he or she recently stopped looking for a job.

What are factors of production?

(economic resources used in the production process) are owned by individuals who earn income by selling or renting these resources to businesses via the factor market.

An increase in nominal GDP could be caused by

-Increase in price -Increase in output -increase in both price and output

A nation has a population of 260 million people. Of these, 60 million are retired, in the military, in institutions, or under 16 years old. There are 188 million who are employed and 12 million who are unemployed. What is the unemployment rate?

1) # unemployed = 12 million 2) # in labor force = 188 million (employed) + 12 million (unemployed) = 200 million Unemployment rate =(# unemployed) / (# unemployed + # employed)

What is the premise of Keynesian theory?

Prices and wages take time to adjust, and therefore, government intervention may be necessary during recessions.

How much percentage does consumption expenditure make up the U.S. in a given year?

70%

According to economist Deidre McCloskey, what is "innovationism?"

A change in attitudes within the last 200 years, whereby everyday people began to appreciate entrepreneurial innovators.

What is passive job search?

Activities do not signal to employers that the individual is available and willing to work

Explain Active job searching

Activities that connect the job searcher with potential employers. These actions indicate to firms that the individual is available and willing to work.

Who was the founder of modern economics?

Adam Smith

Describe a business cycle

An expansion phase follows a business cycle trough, while a recession phase follows a business cycle peak.

On average, what was annual U.S. economic growth since its formation?

Approximately 2% per year

Why did Classical economic theory fall out of favor in the 1930s?

Because Classical theory could not explain why the Great Depression happened, and had no suggestions about how to resolve it.

Why have vastly different theories of economic growth and stabilization accurately described reality at different periods in time?

Because economic theories reflect human nature and decision-making, which changes over time.

Why does an economy experience business cycles?

Because of the natural variation in economic activity that accompanies a dynamic market with everyone leveraging economic freedom to make decisions in rational self-interest.

Why is GDP per capita perhaps the best single measure of standard of living (i.e., compared to using a combination of multiple measures)?

Because real GDP per capita is positively correlated with other factors that affect standard of living, such as life expectancy and happiness.

Why is structural unemployment relatively long term?

Because the skills possessed by the jobless individuals seeking work do not match the skills necessary for jobs currently available, causing them to attain more education or training.

What is an intermediate good?

Combined with other inputs to transform the intermediate good into another product - the final good that is sold to the consumer. [cheese, the fabric]

A headline states: "Real GDP falls again as the economy slumps." This condition is most likely to produce what type of unemployment?

Cyclical because it is caused by downturns in the economy.

If the CPI falls from 315 to 300, then there is deflation? calculate

Deflation = [(300 - 315) / 315]*100% = -4.8%

What is deflation?

Deflation occurs when there is a decrease in the price level.For example, if the CPI falls from 315 to 300, then there is deflation

Why is real GDP per capita an imperfect measure of a country's standard of living?

Doesn't account for many other factors that affect standard of living, such as life expectancy, access to education and healthcare, and political freedom.

On average, how often does U.S. per capita income double?

Every 35 to 40 years

Who purchases investment goods?

Firms, business; They last longer but they are used for the production of other goods.[additional car wash]

What two categories of goods have the most volatile (rapidly changing) prices?

Food and energy

________unemployment includes workers who voluntarily quit their jobs to search for better positions or compensation packages.

Frictional

How do you calculate GDP?

GDP = Consumption spending + Investment spending + Government spending + (value of exports - value of imports)

Describe GDP

GDP includes the market value of all final goods and services produced WITHIN A COUNTRY in a specific time period.

If average U.S. growth was 1% per year

GDP per capita today would be what it was in 1940.

Who purchases consumption goods?

Households, these goods contribute to standard of living and are eventually "used up" by the household that purchases them. [family's microwave]

What was Malthus' theory on economic growth?

Human population growth would outpace food production, resulting in starvation and, ultimately, death.

Which groups are excluded from the labor forces?

Institutionalized persons, Retirees, children under 16 years old, Members of the military

What items are likely included in the CPI market basket?

Items purchased by the typical household or family

The great depression lead to what kind of economic theory and by who?

Macroeconomic theory by John Maynard Keynes.

Was Keynesian theory always part of mainstream economic theory?

No, initially it was part of "fringe" economic theory because it went against Classical economic theory that held for 150 years. Only after the extended Great Depression was there mainstream push for increased government stimulus.

What is an example of a "bad" decrease in unemployment?

Number of unemployed individuals decreases, not because they found jobs, but because they stopped looking for a job

What is a final good in GDP?

Purchased by the end-user of the good - it will NOT be combined with other goods and transformed into another product that will then be sold to the end-user. [aircraft for airlines]

How is real GDP calculated?

Real GDP = (base-year price) x (current quantity), summed over all goods produced

How is real GDP measured?

Real GDP growth = [ (Real GDP2 - Real GDP1) / Real GDP1 ] * 100%

Define Frictional unemployment

Relatively short term because the jobless individual has the necessary skills to satisfy current job vacancies. [newly graduated]

What are the two key factors contributing to economic growth?

Technological advancement and resource accumulation

How is the overall inflation rate calculated?

The percentage change in the consumer price index Inflation = [ ( CPInew - CPIold) / CPInew ] * 100%

Individuals classified as "unemployed" are a part of the labor force because

Unemployed is the not working but seeking work

What is the Unemployment rate calculation?

Unemployment rate =(# unemployed) / (# in labor force) ALSO LOOKS LIKE(# unemployed) / (# unemployed + # employed)

What is potential GDP?

Value of production that the economy has the ability and desire to produce.

What is a final good?

When the final product (the meat, the building/renovation service and salad) are sold to the buyers

To calculate the overall inflation rate,

the items in the CPI basket are held fixed to isolate only changes in market prices.

Structural unemployment results from

advancement in technologies

The phases of a business cycle are

constant from business cycle to business cycle.

According to the BLS, an individual who is unemployed

does not have a job, wants a job, and is actively looking for a job.

Frictional unemployment is

due to job search and job matching caused by a flexible labor market

Seasonal unemployment is

due to regular production trends throughout the year.

Structural unemployment is

due to technological advancement

As a recession worsens, ceteris paribus, the number of discouraged workers __________ and the number of unemployed people ___________.

increases.....decreases

GDP includes output produced ________ but does not include output produced ________.

inside the United States by foreign citizens.....outside the United States by U.S. citizens

Seasonal unemployment is largely unaffected by business cycles because

it depends on time of year, weather, retail cycles, etc.

One key reason why economists track investment purchases is because

it is a good predictor of future GDP

Frictional unemployment is largely unaffected by business cycles becuase

it results from normal labor market turnover.

Structural unemployment is largely unaffected by business cycles because

it results from technological advancement or globalization (trade) that causes a gap between the skill sets required for jobs and the skill sets of unemployed workers.

Economic growth is measured by the percentage change in

real GDP

An investment is included in GDP and recognized by an economists when

the company whose assets are purchased uses those funds to make an investment in infrastructure or physical capital that the activity reflects in GDP.

If the price level is constant

the inflation rate is zero