Econ Test 3
What ISN'T counted for GDP
-illegal goods and services -any legal transaction that cannot be recorded/counted -anything traded outside official market settings. -the sale of used goods -stock transactions and other financial transactions -government "transfer" payments: ex: social security checks
Consumer Price Index (CPI)
-measure of the average change over time in the prices paid by urban consumers for a "market basket" of consumer goods."
Business Cycle
-natural rise and fall of economic growth that occurs over time. -rise and fall in production output of goods and services in an economy.
Depression
-really bad recession -longer time
GDP (Gross Domestic Product)
-the total market value of all final goods and services produced within a country's borders in one year. -way to measure how well the U.S. is doing financially
Real GDP
-total market value of all final goods and services produced within a country's borders in one year and adjusted for inflation - GDP adjusted for inflation
Cyclical Unemployment
-when the economy is in a slowdown/recession and workers get laid off -To prevent: lower taxes, spend money, lower interest rates
What IS counted in GDP
C = personal consumption expenditures durable/nondurable consumer goods and consumer expendables for service I = gross private domestic investment All final purchases of machinery, equipment and tools, all new construction, changes in inventories (no stocks, bonds, resale, public payments) G = government purchases goods/services the government produces for people, social capital (ex: schools) Xn = net exports = exports - imports (Ex: Value of 3 Ford Focuses minus 2 Hondas)
Effects of Recession
GDP goes DOWN Wages go DOWN Unemployment rate go UP
Effects of Deflation
Wages go DOWN Money goes DOWN Unemployment goes UP
Bubbles
a price of some good or service rises beyond what it is really worth
Double-Counting
counting goods more than once in GDP.
GNP
- a measure of the total market value of final goods and services produced by U.S. citizens, no matter where in the world they live.
Intermediate Goods
- good that is not ready for use or purchase - good that is partially assembled - components that are used in producing a final product
Inflation
-An increase in the price level, or the average level of prices -CPI is used to calculate - increases the amount that people must spend on particular goods or services. - reduces the "purchasing power" of money - each dollar of income will buy fewer goods than before.
Structural Unemployment
-When a worker's skills become obsolete -Either machine replace the worker or jobs are offshored -Lots of manufacturing jobs lost
Frictional Unemployment
-When people quit their job to look for a better job -If the economy is good, there is a better chance of finding a better job
Great Depression
-a severe worldwide economic depression that took place mostly during the 1930s, beginning in the United States. -It began after the stock market crash of October 1929, which sent Wall Street into a panic and wiped out millions of investors.
Deflation
-decrease in the price level, or the average level of prices. -downward change in the CPI -can lead to firms going out of business and workers being laid off
5 Phases of The Business Cycle
1. Peak- At the peak of a business cycle, real GDP is at a temporary high. 2. Contraction- If real GDP decreases, the economy is said to be in contraction. A recession occurs when real GDP falls for two consecutive quarters. 3. Trough- The low point in real GDP, just before GDP turns up, is called the trough. 4. Recovery- The recovery is the period when real GDP is rising up to the previous peak. 5. Expansion- The expansion refers to increases in real GDP beyond the recovery.
Recession
6 month (2 quarters) period of decline in output, income, employment, and trade.
Components of GDP
Consumption (largest), Investment (3), Government purchases (2), export spending, and - Import spending
Speculation
when you buy something because you believe the price is going up
