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gross domestic product
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The total market value of final goods and services produced within an economy in a given year.
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gross national product
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gdp plus net income earned abroad
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Nominal GDP
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the value of GDP in current dollars
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Real GDP
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a measure of GDP that controls for changes in prices
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GDP Deflator
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An index that measures how the prices of goods and services included in GDP change over time
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Recession
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commonly defined as 6 consecutive months of declining real GDP
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Growth Recession
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An expression coined by economists to describe an economy that is growing at such a slow pace that more jobs are being lost than are being added. The lack of job creation makes it "feel" as if the economy is in a recession, even though the economy is still advancing
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factor market
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is a marketplace for the services of a factor of production. facilitates the purchase and sale of services of factors of production, which are inputs like labor, capital, land and raw materials that are used by a firm to make a finished product.
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product market
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is the marketplace in which final goods or services are offered for purchase by consumers, businesses, and the public sector. Focusing on the sale of finished goods, it does not include trading in raw or other intermediate materials.
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unemployment rate
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the percentage of the labor force that is unemployed
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Labor Force participation rate
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The percentage of the population over 16 years of age that is in the labor force
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deflation
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negative inflation or falling prices of goods and services
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inflation
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sustained increases in the average prices of all goods and services.
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real interest rate
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the nominal interest rate minus the inflation rate
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CPI
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A price index that measures the cost of a fixed basket of goods chosen to represent the consumption pattern of a typical consumer
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Types on unemplyment
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frictional, structural, cyclical
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frictional unemplyment
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Unemployment that occurs with the normal workings of the economy, such as workers taking time to search for suitable jobs and firms taking time to search for qualified employees.
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structural unemployment
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Unemployment that occurs when there is a mismatch of skills and jobs
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cyclical unemployment
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Unemployment that occurs during fluctuations in real GDP
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real wage rate
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Compensation rate adjusted for the effects of inflation.
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nominal wage rate
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the rate of pay employees are compensated
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nominal interest rate
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interest rate before taking inflation into account
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market basket
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is a permanent set of goods and services that are bought and sold as staples in a functional economy
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natural unemployment
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combination of frictional, structural and surplus unemployment. Even a healthy economy will have this level of unemployment because workers are always coming and going, looking for better jobs.
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labor force
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all the members of a particular organization or population who are able to work, viewed collectively
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marginally attached worker
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is not considered to be either employed or unemployed, so they are not included in the "official" unemployment number that is released by the US government every month.
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discouraged worker
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a person of legal employment age who is not actively seeking employment or who does not find employment after long-term unemployment.
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working age population
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those aged 15 to 64
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composition of GDP and comprises each component
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C=Consumption
I=business investment/spending
G=govt spending
NX= net exports
I=business investment/spending
G=govt spending
NX= net exports
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two ways to calculate GDP
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expenditure and income
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expenditure approach equation
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Y=C+I+G+NX
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unemploymet rate formula
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# of unemployed/labor force
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labor participation rate formula
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number of people actively participating in the labor force/total number of people eligible to participate in the labor force. You can then multiply the resulting quotient by 100 to get the percentage.
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calculate change in inflation rate
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...
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sources of bias in CPI
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new goods
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classical economic models
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asserts that markets function best with minimal government interference.
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flexible wages
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when they respond to changes in supply and demand and lead to the market clearing wage being set.
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flexible prices
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It is a pricing strategy in which the final price at which the product or service being sold is open for negotiation between buyers and sellers. This strategy is common in services which are customized as per customer's requests.
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production fuction
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relates physical output of a production process to physical inputs or factors of production
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Crowding out
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The reduction in investment (or other component of GDP) caused by an increase in government spending
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crowding in
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The increase of investment (or other component of GDP) caused by a decrease in government spending
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calculate real GDP using GDP deflator index
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real GDP year= Nominal GDP yr t/(GDP deflator yr t/GDP deflator base yr)
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calculate change in inflation rate using index
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index for x-index for y/index for y
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relative price versus avg price
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relative price is the comparison of price of a good in comparison to other goods and can change even with stable avg prices,
-relative price may serve as market signals to help rellocate sources
-avg prices may remain unchanged even with changes in individual prices
-relative price may serve as market signals to help rellocate sources
-avg prices may remain unchanged even with changes in individual prices
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