E202
NI
NDP - indirect business taxes - transfers + net US Income abroad + other business income adjustments
PI
NI - corporate taxes - social security - retained earnings + government and business transfers
Real GDP
Nominal GDP/Price Index * 100
Real interest rate
Nominal interest rate - inflation rate
per capita real gdp change
per capita real gdp base year- inflation rate * growth rate
Disposable Income
personal income after personal income taxes have been paid
Calculate Real GDP
quantities* base year prices
Calculate Nominal GDP
quantities* current year prices
Consumption
spending by households on g and s, not including spending on new houses
Personal Income
the amount of income that households actually receive before they pay personal income taxes
National Income
the sum of all income to resource owners: wages, rent, interest, profit, depreciation, indirect business taxes
The simple circular flow model shows that
total income received by households must be equal to the dollar value of all goods and services produced
The cost of inflation to society includes
unpredictable changes in the value of money
wealth effect
when price levels rise, the real value of household wealth declines, and so will consumption, thereby reducing the demand for g and s and vice versa
DI
PI- personal taxes
Gross Domestic Product
The market value of all final goods and services produces in a country during a period of time, typically one year
The unemployment rate is at at the natural rate of unemployment when
cyclical unemployment equals zero
Full Employment
frictional + seasonal + structural
labor force participation rate
labor force/ working age population (non-institutionalized adult pop)
Real values
measurements after adjustments have been made for changes in the average of prices between years, expressed in constant dollars
Nominal values
measurements in terms of the actual market prices at which goods are sold, expressed in current dollars
Inflation rate
new-old/ old
Who is most likely to gain from inflation?
Borrowers
GDP expenditure approach
GDP= C + I + G + NX
Net Exports
Exports - imports
Unemployment rate
Frictional + seasonal + structural + cyclical unemployment/ labor force
NDP
GDP- depreciation
Government Purchases
Spending by federal, state, and local governments on g and s
Investment
Spending by firms on new factories, office buildings, machinery, and additions to inventories, plus spending by households and firms on new homes
What causes the aggregate demand curve to slope downward?
Wealth effect interest rate effect open economy effect
Open economy effect
a higher price level in the US relative to other countries the g and s demanded by other countries will decrease and imports will increase causing the demand for us g and s to fall and vice versa
Interest rate effect
a higher price level will increase the interest rate and reduce investment spending, thereby reducing the quantity of g and s demanded and vice versa
Decrease in LRAS
an increase in the expected future price level an increase in workers and firms adjusting to having previously underestimated the price level an increase in the expected price of an important natural resource
Increase in LRAS
an increase in the labor force or the capital stock an increase in productivity
Increase in AD
an increase in government purchases an increase in household expectations of their future incomes an increase in firms expectations of the future profitability of investment spending
Decrease in AD
an increase in interest rates an increase in personal income taxes or business taxes an increase in the growth rate of domestic GDP relative to the growth rate of foreign GDP an increase in the exchange rate relative to foreign currencies
anticipated price index
base year (100) + expected inflation rate*base year
price index
cost of today market basket/ cost of base year market basket
recession
the period of a business cycle during which total production and total employment are decreasing
expansion
the period of a business cycle during which total production and total employment are increasing
The natural rate of unemployment is best defined as
the rate of unemployment after all workers and employers have fully adjusted to all the changes in the economy