Macro Exam 2 vocab n' stuff

What is the equation for CPI?

(Expenditures in year n / Expenditures in base year) x 100 = CPI

If an economy grows at an annual rate of 7%, how many years will it take for the GDP to double?

10 years

What is the equation used to double GDP?

70 / growth rate

If an economy has an annual growth rate of 1%, how many years will it take for the GDP to double?

70 years

Consider a borrower and a lender, if inflation rate is lower than expected, who gains and who loses?

A borrower will lose and a lender will gain, because the value of the dollar is not a low as expected.

What is Deflation?

A decline in price level.

What is Crowding Out?

A decline in private expenditures as a result of an increase in government purchase.

What is the Consumer Price Index (CPI)?

A measure in the average change over time in the prices a typical urban family of four pays for the g/s they purchase. (measures changes in the cost of living)

What is Price Level?

A measure of the average prices of goods and services in the economy

What is the GDP Deflator

A measure of the price level , calculated by dividing nominal GDP by real GDP and multiplying by 100. (nGDP/rGDP) x 100

What is a Business Cycle?

Alternating periods of economic expansion and economic recession?

What is Efficiency Wage?

An above market wage that a firm pays to increase workers' productivity.

What is Producer Price Index (PPI)?

An average of the prices received by producers of g/s at all stages of the production process.

What is a Centrally Planned Economy?

An economy in which the government decides how economic resources will be allocated

What effect does an Efficiency Wage have on the unemployment rate?

An efficiency wage increases the unemployment rate since firms pay a higher than market wage that increases the quantity of labor supplied.

What determines long-run growth in the GDP?

Capital, labor productivity, and technology.

What is the equation for GDP?

Consumption + Investment + Government Purchases + Net Exports = GDP. (GDP = C + I + G + NX)

What are the four major categories of expenditure?

Consumption, Investment, government purchases, and net exports. (CIGE)

How is Deflation defined?

Deflation is defined as a negative inflation rate.

True or False: During Deflation, firms make higher profits as consumer buy more g/s.

False

True or False: In most countries, political stability has little to do with economic growth.

False

What are Financial Intermediaries?

Firms such as banks, mutual funds, and pension funds, and insurance companies that borrow funds from savers to lend them to borrowers.

Of the eight categories in the CPI market basket, which three categories make up more than 75% of the basket?

Housing, transportation, and food.

What does it mean to be Employed?

In government statistics, someone who currently has a job or who is temporarily away from is or her job.

What does it mean to be Unemployed?

In government statistics, someone who is not currently at work but who is available for work and who has actively looked for work during this previous month.

IF prices rise over time then real GDP will be?

Larger than nominal GDP in years before the base year

What is Capital?

Manufactured goods that are used to produce other g/s

What are Financial Markets?

Markets where financial securities such as stocks and bonds are bought and sold.

What is technological progress affected by?

New software developments, private property rights, investment in capital, and entrepreneurship.

If a house is built and sold in 2008, and then resold in 2019, is the value of the house included in GDP for 2019?

No, GDP for 2019 includes only production that occurs in 2019.

In an economy with rising prices, where is nominal GDP in years after the base year?

Nominal GDP is larger than real GDP in years after the base year

How do you calculate the Labor Force?

Number of employed / % of people employed ie. 154,430 / .959 = 160,032

What are Discouraged Workers?

People who are available for work but have not looked for a job during the previous month because they believe no jobs are available for them.

What does it mean if the GDP deflator in 2012 has a value of 98.0?

Prices have decreased 2% between the base year and 2012

Over time prices may change relative to each other. To take this change into account, the Bureau of Economic Analysis calculates what?

Real GDP using chain weights

What is Frictional Unemployment?

Short-term unemployment that arises from the process of matching workers with jobs.

What is an Entrepreneur?

Someone who operates a business, bringing together factors of production to produce g/s, they also take risks

What is the rule of law?

The ability of a government to enforce the laws of the country.

What are Menu Costs?

The costs to firms of changing prices.

What is a Market for Loanable Funds?

The interaction of borrowers and lenders that determines the market interest rate and the quantity of loanable funds exchanged.

What is Potential GDP?

The level of real GDP attained when all firms are producing at capacity

What is The Brain Drain

The migration of highly educated and successful individuals from developing countries to high income countries.

What effect does the Minimum Wage Law have on the unemployment rate?

The minimum wage law has only a small effect on the unemployment rate since only a small part of the labor force earns the minimum wage.

What is real interest rate?

The nominal interest rate minus the inflation rate.

What is the Natural rate of unemployment?

The normal rate of unemployment consisting of frictional unemployment and structural unemployment.

What is Inflation Rate?

The percentage increase in price level from one year to the next?

What is the Unemployment Rate?

The percentage of the labor force that is unemployed. (Number of unemployed / Labor force x 100 = Unemployment rate.)

What is the Labor Force Participation Rate?

The percentage of the working age population in the labor force. (Labor Force / Working age population x 100 = Labor force participation rate.)

What is the Employment-Population Ratio?

The percentage of the working-age population that is employed. (Employment / Working-age population x 100 = Employment population ratio.)

What is Catch-Up?

The prediction that the level of GDP per capita in poor countries will grow faster than in rich countries.

What is Long-Run Economic Growth?

The process by which rising productivity increases the standard of living

What is Globalization?

The process of countries becoming more open to foreign trade and investment.

Foreign Portfolio Investment

The purchase by an individual or a firm of stocks or bonds issued in another country.

What is Foreign Direct Investment (FDI)?

The purchase or building of a facility by a corporation, in a foreign country.

What are two key factors that cause labor productivity to increase over time?

The quantity of capital per hour worked and the level of technology.

What is Labor Productivity?

The quantity of g/s that can be produced by one worker or by one hour of work

What exactly happens during periods of Deflation?

The real interest rate exceeds the nominal interest rate, and the cost of borrowing increases.

What is nominal interest rate?

The stated interest rate on a loan.

What is the Labor Force?

The sum of employed and unemployed workers in the economy.

What is the Financial System?

The system of financial markets and financial intermediaries through which firms acquire funds from households.

What happens to the unemployment rate during recessions and expansions?

The unemployment rate rises during recessions, falls during expansions, and is always above zero.

What is Nominal GDP?

The value of final g/s evaluated at current year prices.

What is Real GDP?

The value of final g/s valued at base year prices

What do investment tax credits allow?

They allow firms to deduct rom their taxes some fraction of the funds they have spent on investment.

What is Cyclical Unemployment?

Unemployment caused by a business cycle recession

What is Structural Unemployment?

Unemployment that arises from a persistent mismatch between the skills or attributes of workers and the requirements for jobs.

What is the equation for purchasing power/dollar value?

Value of dollars in year n = (CPI in year n / CPI in base year) x Value of dollars in base year.

What are the four categories of income?

Wages, interest, rent, and profit. (WIRP)

When is the economy at full employment?

When all remaining unemployment is either frictional or structural, the natural rate of unemployment prevails, and the unemployment rate is greater than zero.

Are real estate services included in GDP?

Yes

For a given inflation rate...

the nominal interest rate is always higher than the real interest rate, and the real interest rate may be positive or negative.