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