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Microeconomics
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the study of how households and firms make decisions and how they interact in markets
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Macroeconomics
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The study of the economy as a whole
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GDP
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Gross Domestic Product
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Four components of GDP
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Consumption (C)
Investment (I)
Government Purchases (G)
Net Exports (NX)
Investment (I)
Government Purchases (G)
Net Exports (NX)
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Consumption (C)
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using goods and services
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Durable goods
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goods that last for a relatively long time, such as refrigerators, cars, and DVD players
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Non-durable goods
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Goods that last for a short period of time
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gross private domestic investment
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Expenditures for newly produced capital goods (such as machinery, equipment, tools, and buildings) and for additions to inventories.
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Fixed Investment
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Structures, buildings, tools, machinery
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business fixed investment
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business purchases of factories, offices, machinery, and equipment
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Residential fixed investment
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spending on housing units by consumers and landlords
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government purchases
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spending on goods and services by local, state, and federal governments
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Government Transfer Payments
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NOT A G or S- money transferred from Gov to household or firm
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Aggregate Expenditure
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total spending on final goods and services in an economy during a given period, usually a year
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Net Exports (NX)
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exports minus imports
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product or value added approach
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calculates national income by adding value to a product at every stage of its production
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Expenditure Approach
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Computing GDP by adding up the dollar value at current market prices of all final goods and services
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Income Approach
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A method of computing GDP that measures the income-wages, rents, interest, and profits-received by all factors of production in producing final goods and services.
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Nominal GDP (NGDP)
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the value of final goods and services evaluated at CURRENT-year prices
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Real GDP (RGDP)
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GDP expressed in constant, or unchanging, BASE prices
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GDP deflator formula
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NGDP/RGDP x 100
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Inflation Rate Formula
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new-old/old x 100
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GDP per capita formula
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GDP divided by population
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GDP per capita
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average income per person in a country
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GDP growth rate formula
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(GDP year 2 - GDP year 1 / GDP year 1 ) x 100
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Recession
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A slowdown in a nation's economy- example: great depression
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market basket
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a specific G&S in fixed quantities. Example: housing, food, clothing..
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Market Basket Formula
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Total Market Basket / Market Basket Price x 100
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Consumer Price Index (CPI)
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a measure of the overall cost of the goods and services bought by a typical consumer
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CPI formula
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Current basket/base basket X100
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CPI inflation rate formula
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CPI Year 2 - CPI Year 1/ CPI Year 1 x 100
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Headline inflation
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includes food and energy
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Core inflation
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CPI minus food and energy costs
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Difference between CPI and PPI
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CPI= Measure by consumer
PPI= Measure by producer
PPI= Measure by producer
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Consumer Price Index (CPI)
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Measures G&S purchased by consumer
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Purchasing Power Index (PPI)
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measure of inflation from the perspective of producers
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Deflating nominal variables
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(CPI New/CPI OLD) X old price/wage
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PPP (Purchasing Power Parity)
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The buying power of income in a country
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Real GDP per capita growth rate
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= NGDP-PRICE-POPULATON
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Rule of 70
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A method for determining the number of years it will take for some measure to double
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Rule of 70 formula
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...
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Four factors of production
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land, labor, capital, entrepreneurship
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convergence theory
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theory of collective action stating that collective action happens when people with similar ideas and tendencies gather in the same place
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catch-up effect
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the property whereby countries that start off poor tend to grow more rapidly than countries that start off rich
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Investment trade-off
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a reduction in current consumption to pay for investment in capital intended to increase future production
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Proverty trap
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a mechanism that makes it very difficult for people to escape poverty
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Rule of 70 formula
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number of years to double = 70/growth rate
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