Midterm study set

What the three categories into which the Bureau of Labor Statistics divides everyone?

-Employed -Unemployed -Not in the Labor Force

The natural rate of unemployment is made up of which of the types of unemployment?

-Frictional -Structural

List three factors that can lead to a change in the natural rate of unemployment

-Labor Forces Characteristic -Labor Market Institutions -Government Policies

What are the four phrases of the business cycle?

-Peak -Expansion -Trough -Contraction *Maybe: TREND*

What does the balanced budget multiplier equal?

1

List the four components of GDP

1. Consumption (C) 2. Investment (I) 3. Government Purchases (G) 4. Net Exports (NX)

Define deflation

A decline in the price level; prices on average fall

Define inflation

A general rise in prices

Define disinflation

A reduction in the rate of inflation, prices rises at a decreasing pace

cyclical unemployment

Business cycle (may get laid off)

government purchases

Buying schools or paying officials

How does Bureau of Labor Statistics (BLS) compute the labor force and the unemployment rate?

Compute through Surveys

Catch-up effect

Countries with smaller starting levels of capital experience larger benefits from increased capital, allowing these countries to grow faster than countries with abundant capital.

Explain how cyclical unemployment relates to the natural rate of unemployment

Cyclical unemployment is caused by fluctuations in the business business cycle; deviation of the actual rate of unemployment from the natural rate

Define the natural rate of unemployment

Do not fully use their skills, education and experience

Define gross domestic product.

Equal to the total market value of all final goods & services produced by the factors of production within its borders for a given period of times

Describe why GDP can be computed using either expenditures or income

GDP measures output in terms of prices , the buyer pays the price, and the seller receive it So using expenditures means in which sums the amount paid for final goods and services. Income measures the income received for producing products ad services.

What does GDP per capita measure? Why is it not a precise measure of typical person's standard of living?

GDP per capita is useful to measure the relative standard of living of citizens in different countries. (Measuring the rich or poor country)

Describe two ways in which the U.S. government tries to encourage advances in technological knowledge

Government can try to encourage advances in technological knowledges sponsor research and development. They can also provide research grants and patent system

List and explain five different actions the government can take to promote long-run economic growth

Land & Natural Resources (N): subsides, oil/mining company, offshore Labor (L): cash bonus for kids, reduce tax, daycare paid Human Capital (H): Increase pell grants, increase scholarships, free college Physical Capital (K): tax breaks Grant funding, trained workers Total Output Equal Technology (A): patent system, Increase funding/spending on STEMS

An economy in 2008 produced $500 billion worth of final goods and services. Of these, $70 billion were investment goods. During the year, $25 billion of the capital stock in existence at the beginning of 2008 was replaced or repaired. What is the NDP for 2008 for this economy?

NDP= GDP - Depreciation NDP= 500 -25 NDP= 475 billion

Why is investment in human capital good for both individuals and fostering economic growth for the economy as a whole?

Nations can ultimately raise their growth rates by improving worker productivity. Government programs that raise the literacy rate, such as universal public education also raise the rate of economic growth

Consumption

Purchases of durable goods

production function

Relationship between the inputs and the outputs under existing technology

Consumer Price Index (CPI) measures of inflation

Retail Market

inflationary gap

Short-run equilibrium real production is greater than full employment real production

recessionary gap

Short-run equilibrium real production is less than full employment real production

frictional unemployment

Skills and economy is good looking for a job

structural unemployment

Skills are no longer good

Why does a small difference in the economic growth rate lead to big differences over time?

Small difference in growth can equal big differences over time due to the power of compounding

How does the government facilitate economic growth?

The government ensures that an effective legal system is in place to enforce contracts and to protect property rights and that the financial system is kept stable lowering interest taxes and generating jobs

Paradox of thrift

The implication of Keynesian analysis for actual aggregate household saving and household intentions regarding saving.

Who loses from unanticipated inflation? Who benefits

The one who gonna be hurt by inflation is people that live on fix income. A debtor will however benefit while the creditors will lose from unanticipated inflation.

Seasonal unemployment

Weather patterns

Drawbacks of CPI

When the price of one good rises, consumers will substitute in a favor of a relatively lower-period alternative

Net Exports (NX)

Xn= (x-m)

Explain why a decline in investment spending caused by a change in business expectations leads to a fall in consumer spending

a decline in investment spending, like rise in investment spending, has a multiplier effect on real GDP-the only difference in this case is that real GDP falls instead of rises. The fall in I leads to an initial fall in GDP, which leads to a fall in disposable income ( because less production means a decrease in payment to workers), which leads to lower consumer spending, which leads to another fall in real GDP, and so on. So consumer spending falls as a indirect result of fall in investment spending.

Producer Price Index (PPI)

a measure of average prices received by producers

GDP Deflator

a measure of the price level, calculated by dividing nominal GDP by real GDP and multiplying by 100 Measure of the average change in prices of the component

price index

a number that compares prices in one year with prices in some earlier base year

Will each of the following transactions be included in GDP for the United States? Explain why or why not. a. Coca-Cola builds a new bottling plant in the United States. b. Delta sells one of its existing airplanes to Korean Air. c. Ms. Moneybags buys an existing share of Disney stock. d. A California winery produces a bottle of Chardonnay and sells it to a customer in Montreal, Canada. e. An American buys a bottle of French perfume in Tulsa. f. A book publisher produces too many copies of a new book; the books don't sell this year, so the publisher adds the surplus books to inventories.

a. Yes. New structures built in the United States are included in U.S. GDP. b. No. The airplane is used, and sales of used goods are not included in GDP. c. No. This is a transfer of ownership-not new production. d. Yes. This is an export. e. No. This is an import-it was not produced in the United States. f. Yes. Additions to inventories are considered investments.

Define discouraged workers

people who want a job but have given up looking

investment

spending on capital equipment, inventories, and structures, including household purchases of new housing

The inflation rate

the percentage rate of change in price level over time