Econ Exam 2 Test Review

If GDP in year one was 150 billion and 175 in year two, what was the growth rate?

(175-150)/150*100 = GROWTH RATE 2nd year-1st year/1st year *100

What is Okun's Law?

2 to 1 ratio between unemployment and GDP growth/shrink Natural rate is 5% current unemployment is 6%-> GDP will decrease by 2%

expansion

A period of economic growth as measured by a rise in real GDP

What relationship do unemployment and inflation have?

As unemployment goes up inflation goes down. Inverse relationship

What is the CPI?

Consumer price index-measures a basket of goods that do not change year to year to see how the same basket price changes. Measure of consumer inflation\ Basket in current year/ base year basket* 100

Two types of Inflation

Demand pull and cost push inflations Demand pull inflation: Excess spending relative to output Central bank issues too much money Cost-push inflation: due to a rise per-unit input costs

Durable goods vs. non-durable goods in production/consumption and the business cycle.

Durable goods are cars, appliances and house. non durable goods are like your coffee, makeup, final goods

Durable vs. Nondurable goods and how consumption is effected when we are in a recession?

Durable goods last, nondurable goods are short life span, in a recession durable good consumption is more hurt than nondurable goods

How do unemployment rates for males differ from females?

Female unemployment rate is higher for females and lower for males

What is the leader/follower theory?

Follower Interaction theory contends that the effective leader is one who analyzes the deficiencies in the follower's ability, motivation, role perception, and work environment which inhibit performance, and then takes action to eliminate those deficiencies.

GDP per capita

GDP divided by population

· How do you avoid double counting when measuring GDP?

GDP is based on the "value added" principle and, therefore, leaves out the value of goods and services which are used in the production of other products.

How is economic growth best defined or shown? What stat tells up the best way to see economic growth?

GDP per capita

What are the components of the expenditure model for GDP

GDP= Consumption+Private Investment+Gov Spend+Net Exports New goods

Inflation

General rise in prices and CPI index*****IMPORTANT

Gdp

Gross Domestic Product- the total market value of all final goods and services produced annually in an economy

What is the deal with real income when you have increases in nominal income and inflations both rising at different levels?

If you have you increases in inflation and nominal wage you real income will: Increase if wage growth is greater than inflation, decrease if inflation is greater than wage growth

In general, what is included and not included in GDP. Can you give examples

New FINAL goods-included NOT included-used goods and transfer payments

What is the business cycle and what are the phases?

Peak, recession, trough and expansion

What is inflation and how do you calculate it?

Price in year 2- Price in year 1)/ price in year 1)*100 growth rate formula

What are "Sticky Prices" and how do they effect the business cycle?

Prices that are slow to adjust to changes in the business cycle and thus GDP

Why do improvements in quality understate GDP growth?

Quality understates gdp growth

How do we show economic growth on the Production Possibilities Curve?

Rightward shift out

Flexible vs sticky prices

Sticky prices are often triggered by an impediment or a change in cost and cannot fluctuate easily. On the other hand, flexible prices are more susceptible to change as they adapt to market conditions

What is the Rule of 70? If given numbers, can you figure out the answer?

Taking 70/ growth rate- tells you how many years till your GDP will double Growth rate= 3%-> 70/3= 23.333 years for our GDP to double

Why are strong property rights essential for economic growth?

They give confidence to individuals and businesses to invest in land, allow private companies to borrow - using land as a collateral - to expand job opportunities, and enable governments to collect property taxes, which are necessary to finance the provision of infrastructure and services to citizens.

How is GDP understated?

Transfer payments (cash app, venmo, cash) anything under the table

Unemployment rate:

Unemployed/ labor force * 100 DISCOURAGED WORKERS NOT IN RATE. Labor force = unemployed and employed

Cyclical is anything ABOVE the natural rate.

Unemployment- Natural rate= CYCLICAL UNEMPLOYMENT

During the Great Recession who was hit the hardest by unemployment?

White male unemployment

Reccession

a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters.

GDP gap

actual GDP - potential GDP

What is a price index?

an index number showing the extent to which a price, or a 'basket' of prices, has changed over a month, quarter or year, in comparison with the price(s) in a base year

Investments

assets such as stocks, bonds, mutual funds, and real estate that are acquired in order to earn a return rather than provide a service. savings

Two primary concerns of Macroeconomics are

changes in output and _unemployment______ and long run ___inflation____

What is included in each part of the expenditure model for GDP?

consumption, investment, government spending, exports, and imports.

What are the 3 types of unemployment we talked about? Can you give examples of each one?

cyclical, frictional, structural,

Who is hurt by inflation?

fixed-income receivers, savers, creditors

Under what type of prices (sticky or flexible) would a firm hold inventory if there was a demand shock?

flexible

GDP growth per year

last year-this year/ this year *100

Trough (economic cycle)

low turning point

How is the unemployment rate calculated?

number of unemployed/labor force x 100

frictonal unemployment

occurs when people take time to find a job

Nominal vs. Real GDP

real values are adjusted for inflation, while nominal values are not. As a result, nominal GDP will often appear higher than real GDP.

Demand shocks

refer to unexpected changes in the desires of households and businesses to buy goods and services.

Supply Shocks

sudden, unexpected changes in aggregate supply

Peak

the height of an economic expansion, when real GDP stops rising

What is our natural rate of unemployment? What type of unemployment occurs when we are ABOVE the natural rate compared to when we are at or below our natural rate?

the rate of unemployment that is compatible with a steady inflation rate. Cyclial unemployment

structural unemployment

unemployment that occurs when workers' skills do not match the jobs that are available

cyclical unemployment

unemployment that rises during economic downturns and falls when the economy improves