question
components of GDP
answer
Consumption:
-durable goods (items that last more than three years)
-nondurable goods (food and clothing)
-services
Investment Spending:
-nonresidential (spending on plants and equipment) residential (single family and multi family homes)
-business inventories
Government Expenditures:
-Defense, roads, schools
Net exports:
-Exports are added to the GDP
-Imports are deducted from the GDP
-durable goods (items that last more than three years)
-nondurable goods (food and clothing)
-services
Investment Spending:
-nonresidential (spending on plants and equipment) residential (single family and multi family homes)
-business inventories
Government Expenditures:
-Defense, roads, schools
Net exports:
-Exports are added to the GDP
-Imports are deducted from the GDP
question
business cycles- expansion, peak, contraction, trough
answer
-a series of periods of expanding and contracting economic activity
-measured by increases and decreases in real GDP
-expansion: period of economic growth (increase in GDP), grows from a trough (low point)
-unemployment goes down during expansion
-peak: point at which real GDP is the highest, prices rise and resources tighten so businesses are less profitable
-contraction: begins after peak, producers cut back and resources become less scarce and prices stabilize or fall. Unemployment rises
-trough: real GDP and employment stop declining
-measured by increases and decreases in real GDP
-expansion: period of economic growth (increase in GDP), grows from a trough (low point)
-unemployment goes down during expansion
-peak: point at which real GDP is the highest, prices rise and resources tighten so businesses are less profitable
-contraction: begins after peak, producers cut back and resources become less scarce and prices stabilize or fall. Unemployment rises
-trough: real GDP and employment stop declining
question
aggregate demand
answer
the total amount of goods and services that households, businesses, government, and foreign purchasers will buy at each and every price level
question
aggregate supply
answer
the total amount of goods and services that producers will provide at each and every price level
question
What changes aggregate demand and supply?
answer
business cycles
question
How do changes in aggregate supply and demand affect unemployment and inflation?
answer
as aggregate supply increases, the price level goes down, and the equilibrium GDP goes up. If aggregate supply decreases, the supply curve shifts left and results in higher price level and lower equilibrium real GDP. Aggregate demand increase results in a higher price level and the equilibrium GDP rises. If aggregate demand were to decrease, the equilibrium GDP goes down
question
Unemployment rate
answer
the percentage of the labor force that is jobless and looking for work
question
Different types of unemployment
answer
frictional: temporary, moving from one job to another
seasonal: seasonal changes in jobs
structural: a situation where jobs exist but workers looking for work do not have the necessary skills for these jobs
cyclical: unemployment caused by part of the business cycle with decreased economic activity
seasonal: seasonal changes in jobs
structural: a situation where jobs exist but workers looking for work do not have the necessary skills for these jobs
cyclical: unemployment caused by part of the business cycle with decreased economic activity
question
Income distribution and inequality
answer
the way income is divided among people, the unequal distribution of income
question
Causes and consequences of inflation
answer
causes: demand pull inflation, cost push inflation, wage price spiral
consequences: decreased value of the dollar, increased interest rates, decreased real returns on savings
consequences: decreased value of the dollar, increased interest rates, decreased real returns on savings
question
Demand pull inflation
answer
results when total demand rises faster than the production of goods and services
question
Cost push inflation
answer
increases in the costs of production push up prices
question
Wage price spiral
answer
a cycle in which increased wages lead to higher production costs, which in turn results in higher prices, which then leads to demands for higher wages
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