Econ Ch. 8 and 9

Business Cycle is...

Alternating periods of economic expansion and economic recession.

What are the four major categories of expenditures?

Consumption, Investment, Government purchases and Net Exports

Why is GDP an imperfect measurement of total production in the economy ?

GDP does not include household production or production from the underground economy.

if something is produced in the U.S and shipped out of the country it is a ?

Net export

Why is GDP not a perfect measure of well being?

The costs of pollution are not included, the value of leisure is not included, GDP does not include crime rate or income distribution.

What is Gross Domestic Product (GDP) ?

The market value of all final goods and service produced in a country in a period of time

Expansion is...

The period in a business cycle where total production and total employment are increasing.

why are transer payments not included in GDP calculations ?

Transfer payments are simply transfers of income from one group to another and not a purchase of a new good or service

Final good or service is...

a good or service purchased by a final user.

intermediate good or service is...

a good or service that is an input into another good or service, such as a tire on a truck.

what is price level?

a measure of the average prices of goods and services in the economy.

underground economy

buying and selling goods or services that is concealed from the government to avoid paying taxes if it is illegal

producer price index (PPI) can do what?

can give an early warning to future increases in price level.

how do you calculate GDP deflator?

dividing nominal GDP by real GDP and mulitplying by 100

net exports

exports minus imports

consumer price index (CPI)

how we measure the cost of living // the cost of basket in the current year divided by cost of basket in base year X 100

the purchase of a new house is included in what ?

investment expenditures

real interest rate =

nominal interest rate - inflation rate

how do you calculate the unemployment rate?

number of unemployed divided by number in labor force X 100

transfer payments are...

payments by government to household where the government does not recieve a good or service in return.

Disposable personal income is ?

personal income minus personal taxes

to examine how the total production of an economy has changed over time it would be better to examine what?

real GDP

Unemployed

someone who is not currently at work but who is available for work and has actively searched within the last month.

Government purchases

spending buy local, state and federal government on goods and services

what is investment?

spending by firms on new factories, new office building, machinery, and additions to inventories, plus spending by household on new homes.

what is consumption?

spending by households on goods and services not included spedning on new houses.

Economic growth is...

the ability of an economy to produce increasing quantities of goods and services.

cost of living is...

the amount of money needed to afford a certain standard of living

natural rate of unemployment is ?

the full employment level in the economy.

value added

the market value a firm adds to a product

inflation rate is....

the percentage increase in the price level from one year to the next.

what is the unemployment rate?

the percentage of the labor force that is unemployed

labor force participation rate

the percentage of working age population in the labor force. // labor force divided by working age population

Recession is...

the period in a business cycle where total production and total employment are decreasing.

who is the labor force?

the sum of employed and unemployed workers in the economy

nominal GDP

the value of final goods and services evaluated at current year prices.

real GDP

the value of final goods and services evaluated at the base year.

the value of total income for an economy equals...

the value of total production

structural unemployment

unemployment due to changes in the make up of the economy ex. if your job got shipped overseas, tookover by machine,

frictional unemployment

unemployment due to normal turnover

cyclical unemployment

unemployment due to recession

Which equation sums up the compnents of Gross Domestic Product (GDP)

y = C + I + G + NX