Ch. 1-2 UGBA 101B

GDP Deflator Formula

$Yt/Yt

Okun's Law

1 percent more unemployment results in 2 percent less GDP (output)

What are 3 reasons why we should we care about unemployment?

1. Bc of the human cost it represents 2. Signals how efficiently the economy is using its resources 3. High unemployment indicates the economy isn't utilizing resources efficiently

What are 3 reasons why we should we care about inflation?

1. Changes in income distribution 2. Distortions 3. Increased uncertainty

What are some other names for Nominal GDP?

1. Dollar GDP 2. GDP in current dollars

What are some other names for Real GDP

1. GDP in terms of goods 2. GDP in constant dollars 3. GDP adjusted for inflation 4. GDP in (chained) 2017 dollars 5. GDP in 2017 dollars

What are the two reasons why economists care about unemployment?

1. It signifies the inefficient use of human resources 2. It inflicts suffering on those who are unable to find work

What are the 3 ways to measure GDP?

1. Production Approach (value-added) 2. Expenditure Approach 3. Income Approach

Today, the United States and many other nations calculate real GDP using a chained methodology. This is, in part, to remedy a major disadvantage of the old method, which involved using a base year for prices that was changed every five years or so. What were the two major disadvantages of using the old method?

1. When the base year changed, all of the old measures of real GDP had to be recalculated. 2. The old methodology tended to underweight the real growth of industries growing above average and overweight those growing below average.

If in year t nominal GDP is $7,200 and real GDP is $6,200, the GDP deflator is ____. (Round your response to two decimal places. Do not multiply by 100)

1.16

Looking at the Phillip's curve, when unemployment has been above 5%, inflation has typically been above BLANK%.

2%

Forecasts show that the earth's temperature will increase by another ____ degrees celsius by the end of the century if we elect to do nothing to stop global warming.

3

Suppose a country using the United States' system of calculating official unemployment statistics has 100 million people, of whom 50 million are working age. Of these 50 million, 20 million have jobs. Of the remainder: 10 million are actively searching for jobs; 10 million would like jobs but are not searching; and 10 million do not want jobs at all. The official unemployment rate in percentage points is...

33%

In 2021 the top 10% of U.S. wage earners received ____ of total pretax income.

45%

From 1960 to 2019 China's growth rate has averaged ____ per year.

5.6%

What is a "good" unemployment rate?

6%

Labor income's share in an advanced country is likely to be about

70%

Suppose you are provided with the following data for your country for a particular month: 200 million people are working, 20 million are not working but are looking for work, and 40 million are not working and have given up looking for work. Your country uses the same standards for calculating unemployment as the US. The official unemployment rate for that month is ____

9.1%

What is the most ideal rate of inflation

Between 1%-4% (best is 2%)

What was the initial response of most central banks to the Covid-19 pandemic and subsequent lockdowns of most nation's economies?

Central banks reduced interest rates to near zero

Politicians are very shortsighted and prefer to run deficits rather than increase taxes. This is known as BLANK.

Deficit Bias

Employment Rate

Employed/Total Working Age. Pop. (LF + NILF)

True or False: When the unemployment rate is high, the participation rate is high

False

GDP Expenditure Approach (most common)

GDP = C + I + G + (X-M)

Using the Phillips curve, what will happen to the unemployment rate when the rate of inflation is 2%?

It will be about 5.5%

Labor Force Participation Rate

Labor Force (U+E)/ Total Working Age Population (NILF + LF)

Pure Inflation

No such thing as pure inflation, but it is a proportional increase in all prices and wages

GDP Deflator

Prices of all goods/services produced (doesn't include imported goods).

Which of the following data types do economists generally use to compare GDP across countries?

Purchasing Power Parity (PPP) numbers

Real GDP Formula

Real GDP = Nominal GDP - Inflation

In the United States, who is classified as unemployed?

Someone who does not have a job, has recently looked for work, and is collecting unemployment insurance

T/F: Using official data, U.S. GDP was 47 times higher in 2022 than it was in 1960

True

The rate of unemployment tends to fall during expansions and rise during recessions.

True

True or False: Periods of negative GDP growth are called recessions.

True

Unemployment Rate

Unemployed/Labor Force

How to find the avg. productivity growth rate

[((xt-(xt-n))^0.1)-1]*100

CPI Formula

[(Cost of market basket Year 1)/(Cost of market basket year b)]*100

Phillip's Curve

a curve that shows the short-run trade-off between inflation and unemployment. Lower unemployment rates are associated with higher inflation rates and vice versa.

Consumer Price Index (CPI)

a measure of the overall cost of the goods and services bought by a typical consumer (includes imported goods).

What factors determine output (GDP) in the short run (a few years)?

changes in demand

GDP Production Approach

current market value of all final goods and services newly produced in the economy during a fixed period of time. GDP = (Px*Qx)+(Py*Qy)

Overall, inequality across countries has ____ over the past 40 years.

decreased

What factors determine output (GDP) in the long run (few decades)?

education system, saving rate, and role of the government.

What does the CPI give us?

gives us the average price of consumption (price of living)

What does the GDP deflator give us?

gives us the average price of output

The prices for which of the following goods are included in both the GDP deflator and the consumer price index?

goods bought by households

Since 1960 inequality in the United States has ____.

increased

There is/isn't overwhelming evidence that shows that global warming does exist

is

Which of the following statements about capital income is NOT correct?

it refers to a firm's income

A firm's value added in any period equals

its revenue minus its cost of intermediate goods in that period

When using the income approach to measure GDP, the largest share of GDP generally consists of:

labor income

From the income side of GDP, what can we add to solve for it?

labor income + capital/profit income

Because of discouraged workers, a higher unemployment rate is typically associated with a higher/lower participation rate

lower

How often is the CPI published?

monthly

What isn't included in GDP?

quality of life, gov. transfers, intermediate goods, unpaid work, used/resold goods, capital gain that doesn't lead to production (making money in the stock market or winning money from gambling).

How often is the GDP deflator published?

quarterly

What does Real GDP in chained (2017) dollars reflect?

relative prices that change over time

What factors determine output (GDP) in the medium run (decade)?

supply factors (capital stock, level of technology, size of the labor force)

During the late 1990s, Japan experienced reductions in the GDP deflator. Given this information, we know with certainty that:

the overall price level in Japan decreased during these periods

Hedonic Pricing

the process of adjusting the price of a good for changes in its quality

What effect do imports have on GDP?

they reduce GDP (also imports don't count as intermediate goods)

GDP Income Approach

total income of everyone in the economy