ECO: Test #2(Chapters 7, 8, and 9)

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modern economic difference from non-modern

can grow faster

Durable goods most affect

capital goods - consumer durables

cyclical unemp.

caused by the recession phase of the business cycle

cost push inflation during recession

dies out in recession if spending doesn't rise

supply factors...

help expand potential size of gDP

higher unemp. =

higher GDP gap

is econ. growth desirable? (yes)

higher standard of living - greater material abundance - more leisure time - allows expansion and application of human knowledge - better medical care and education

demand factor

households, businesses, and govrnment must purchase the economy's expanding output

econ. growth being desirable counter to environ. and resource problems that come with econ. growth

human imagination can solve environ. and resource issues

explain 2 ways to measure economic growth

increase in real GDP over some time period AND increase in real GDP per capita over some time period

industrial revolution -->

increase in wealth + living standards

NRU measures

full employment rate of unemp.

cyclical unemp. causes

great depression

modern economic growth provides greater ... when compared to non-modern

greater standards of living

How does GDP avoid multiple counting

using market value of final goods - ignores intermediate goods - counts value added

how is counting the value added to the economy work

value added calculated by difference between sales value of materials and value of good at previous stage value

income or allocations approach sum

wages + rents + interest + profits + statistical adjustments

demand pull inflation: both views

zero inflation best - mild inflation best

group 2 unemp.

"not in labor force"; stay at home parents, retirees, full-time college students not working

Expenditure meaning

$ spent

US productivity growth fluctuation since 1973 reasons

- microchip and info. tech. - global completion rises as socialist econ. collapses

15% econ. growth

15% educ. and training AND 15% econ. of scale and resource allocation

group 3 unemp.

16 and up who are willing and able to work and are actively seeking work

types of unemp.

3 types

What does the bureau of economic allow us to do

Assess the health of the economy - track long-run course - formulate policy

BLS

Bureau of Labor Statistics

Expenditure approach sum

Consumption expenditure by households + investment expenditure by businesses + government purchases of goods and services + expenditures by foreigners

Bureau of Economic Analysis

Compiles national income and product accounts

structural unemp.

occurs due to changes in struct. of the demand for labor

output accompanies

recession and depression

GDP transactions that are excluded

Exclude financial transactions - excludes secondhand sales

National Income Economy

Measures the economy's overall performance

Economists + policymakers use this to make economic decisions

National Income Economy

excluded from GDP financial transactions

Public transfer payments (social security payments) - private transfer payments (Christmas gifts) - Stock market transactions

rise in quant. of labor and inc. in labor productivity affects

US econ. growth

cost push inflation redistributes

a decreased level of real income

special about struct. unemp.

a job is no longer needed

- high debt may have caused what for productivity growth

a later slowdown

follower countries

adopt technology from leader countries

gross domestic product

allows us to use $ to calculate economy because value of items is different

business cycle

alternating up and down in economy activity over time

inflation premium

amount that interest rate is raised to cover effects of antcip. inflation

trough in business cycle

bottom of recession period

strong property rights

copyright laws - innovations - efficient financial institutions - literacy - education - free trade - competitive market system- etc.

demand pul inflation vs

cost push inflation

real income effects on output

cost push inflation

Income approach

count income derived from production - wages, rental income, interest income, profit

Expenditure approach

count sum of $ spent buying the final goods - look at who buys the goods

Increase in real GDP per capita over some time period measurement is better for

country to country comparison

full employment is when

cyclical unemp. at 0

NEBR purpose

declare start and end of recessions

recession in business cycle

decline in everything for 6 or more months

determinants of growth

demand factor and efficiency factor

production possibilities curve

demand, supply, and efficiency facts contributing to economic growth

GDP is only

domestic output

inflation accompanies econ. growth while...

down in employment

cost push inflation

due to rise in per-unit costs - supply shocks - as price increases of per-unit production cost, output fails

Personal consumption expenditures

durable goods - nondurable goods - consumer expenditures for services - domestic plus foreign goods produced

recession in business cycle is aka

economic contraction

Increase in real GDP over some time period measurement is better for

economic goals

demand pull inflation

excess spending relative to output - central bank issues too much $ - spending goes higher faster than production

durable goods expected life

expected life 3-4 years

supply factors

increases n quantity and quality of natural resources - increases in qual. and quant. of human resources - increases in the supply (or stock) of capital goods - improvements in technology

real GDP per capita is different from real gdp in that it

increases slower

society can raise real output by

increasing inputs of resources - raising productivity of those inputs

frictional unemp.

indiv. searching for jobs or waiting to soon tak a job

CPC measures

inflation

leader countries

invent technology

is econ. growth sustainable

limited resources, but could cause innovation that helps sustainability

problem with unemp. rate measurements

many inconsistencies make for an understated unemp. rate

GDP counts value added from

market value of a firm's output minus inputs the firm purchased from others

GDP

measure of aggregate output (as a whole) - avoids multiple counting

efficiency factor

must achieve economic efficiency and full employment (use goods in least costly way)

NRU

natural rate of unemp.

real income

nominal income adjusted for inflation

real interest rate =

nominal rate MINUS inflation premium

NEBR

non-profit economic research organization

expansion in business cycle

output and employment recovering and expanding to full employment

phases of the business cycle

peak - recession - trough - expansion

per capita

per person

causes of shocks

political events - financial instability - irregular innovation - productivity changes - monetary factors (like excessive money printing)

is econ. growth desirable? (no)

pollution - ozone depletion - no evid. that econ. growth solves sociological probs. (poverty, homelessness, discrimination)

what does GDP not account for

quality of life, leisure time, environment, etc. changes

30% US econ. growth

quant. of capital

cost push inflation reduces

real output

US productivity growth fluctuation since 1973 related to

real output - real income - real wages

Excluded from GDP secondhand sales

selling a used car to a friend

nondurable consumer goods east affect

service - food and clothing

results of the two GDP approaches

should provide the same results

severe unemp. =

socially catastrophic

non-durable goods can be described as

something you can't postpone spending on like you can wit durable goods

what is special about group 3 unemp.

still considered part of labor force

Factors in modern econ. gorwth

strong property rights

US econ. growth is 40%

technological advancements

peak in business cycle

temporary max w/ full employment and near capacity output

what does "real income" refer to

the purchasing power of income

nominal income

unadjusted for inflation - # of recieved as ages, rent, interest, or profit

group 1 unmep.

under 16 or institutionalized (dependent); in school, prison, or nursing home

output accompanies recession and depression which causes

uneven growth


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