question
Which type of economy includes the ROW?
answer
Open Economy, Closed does not
question
Absorption Equation
answer
Absorption = Consumption + Investment + Government Spending
question
GDP equation
answer
GDP = Consumption + Investment + Government Spending + Exports - Imports
question
Consumption is:
answer
purchases of goods and services by households
question
Investment is:
answer
Purchases of capital goods by firms
question
Government Spending is:
answer
purchases of goods and services by all levels of government
question
Net Exports =
answer
exports - imports
question
Net exports includes
answer
Goods AND Services
question
Nominal GDP =
answer
current quantities x current prices (BOTH CURRENT)
question
Real GDP =
answer
current quantities x BASE YEAR prices
question
GDP Deflator =
answer
ratio of nominal GDP/Real GDP
question
Nominal GDP = (with Deflator)
answer
(GDP Deflator/100) x Real GDP
question
A worker is employed if:
answer
Worked for at least 1 hour in past week for pay OR
Worked for at least 15 hours with pay in a family business OR
They aren't working but had a job for which they were temporarily absent
Worked for at least 15 hours with pay in a family business OR
They aren't working but had a job for which they were temporarily absent
question
Worker is unemployed if:
answer
At least 16 years old AND
Not institutionalized AND
Able to work AND
They're actively seeking employment within last 4 weeks or waiting to be recalled to a job from which they were laid off
Not institutionalized AND
Able to work AND
They're actively seeking employment within last 4 weeks or waiting to be recalled to a job from which they were laid off
question
Labor Force =
answer
Employed + Unemployed
question
LFPR =
answer
Labor Force/Adult Population
question
Unemployment Rate =
answer
#unemployed/Labor Force
question
Alternative Unemployment Rate =
answer
(U+IPW+MAW)/(LF+MAW)
question
U = (for AUR)
answer
# of unemployed
question
IPW = (for AUR)
answer
Labor Force/Adult Population
question
MAW = (for AUR)
answer
marginally attached workers
question
LF = (for AUR)
answer
Labor force
question
Employment Rate =
answer
# employed/Adult Population
question
Frictional Unemployment Characteristics
answer
- Inevitable and temporary
- Includes first time searchers, quits, and seasonal workers
- Usually short in duration (5-6 weeks)
- Return salary about equal to previous wages
- Includes first time searchers, quits, and seasonal workers
- Usually short in duration (5-6 weeks)
- Return salary about equal to previous wages
question
Structural Unemployment Characteristics
answer
- Typically associated with structural change in the economy
- Mismatch of workers' job skills and economy's demands
- Longer duration (6 months - 1 year)
- New wages below previous wages
- Mismatch of workers' job skills and economy's demands
- Longer duration (6 months - 1 year)
- New wages below previous wages
question
Cyclical Unemployment Characteristics
answer
- from a shortage of jobs due to low levels of economic activity
- Workers are willing to work at offered wages
- Varying duration
- New wages at about previous wages
- Solved by stimulating economy to increase labor demands
- Workers are willing to work at offered wages
- Varying duration
- New wages at about previous wages
- Solved by stimulating economy to increase labor demands
question
Natural Rate (unemployment)=
answer
(Frictional + Structural)/Labor Force
question
CPI (consumer price index) measures what
answer
the change in cost of a "market basket" of goods
question
CPI =
answer
(cost of basket in current year/cost of basket in base year) x 100
question
CPI includes and excludes what
answer
Includes imported consumer goods, excludes capital goods
question
Inflation rate is:
answer
the percentage change in the price index from the preceding period, the "purchasing power" of the dollar
question
Inflation Rate =
answer
CPI this year - CPI last year / CPI last year x 100
question
GDP Deflator is:
answer
inflation for domestically produced goods
question
GDP Deflator includes/excludes
answer
Includes capital goods (if domestically produced) and excludes imported consumer goods
question
Producer Price Index (PPI) is:
answer
price change for specific goods
question
Category CPIs are:
answer
Inflation rates for types of goods
question
Current Value =
answer
(past value) x (CPIc/CPIp)
question
Interest Rate Equation
answer
R(t+1) = (1 + rt) x Bt
Future amount = (1 + rate) x Current Amount
Future amount = (1 + rate) x Current Amount
question
Direct Terms for Exchange Rate
answer
foreign currency/domestic currency
(indirect is opposite)
(indirect is opposite)
question
Appreciation
answer
when the domestic currency is worth more units of a foreign currency (Depreciation is the opposite)
question
A stronger currency makes (more/less) easy export
answer
less
question
"Pegged" Interest Rates:
answer
a fixed rate the government sets and maintains as the official exchange rate
question
"Nominal" Exchange Rate:
answer
trading ratio for two country's CURRENCIES
question
"Real" Exchange Rate:
answer
radio ratio for two country's GOODS (wine bottle example)
question
Real Exchange Rate =
answer
((nominal exchange rate in direct terms) x (Price Index for domestic country))/Price index for the foreign country)
question
When Real Exchange Rate falls, domestic goods become (cheaper and more competitive/more expensive and less competitive) relative to ROW goods
answer
cheaper and more competitive
question
Purchasing Power Parity:
answer
based upon the law of one price, a good should sell for the same price in all locations, but it doesn't
question
A decline in Real Exchange Rate:
answer
stimulates exports and retards imports (exports are relatively cheap and imports are relatively expensive) and opposite for an increase
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