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GDP Definition
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the TOTAL DOLLAR VALUE of all NEWLY produced FINAL goods and services produced in a country in a given year
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GDP Significance
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single most important measure of an economy's performance
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consumer spending
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makes up the largest part of GDP
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Formula for GDP
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C+I+G+(X-M)
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Net Exports
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Exports - Imports
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Macroeconomics Goals
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Economic Growth, Full Employment, Price Stability
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Investment Spending
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Spending on construction, machines, capital, inventory, and other things that will help to produce more in the future. (NOT stocks and bonds)
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Exports
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Goods we sell and ship to other countries
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Imports
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Goods we buy from other countries
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NOT included in GDP
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- used goods
- intermediate goods
- non-market transactions
- stocks and bonds
- illegal activity (gambling, drugs, etc.)
- intermediate goods
- non-market transactions
- stocks and bonds
- illegal activity (gambling, drugs, etc.)
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intermediate good
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a good that will be used as part of a final product (ex. tires on a car, buttons on a shirt)
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3 Economic Indicators
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- GDP
- Inflation
- Unemployment
- Inflation
- Unemployment
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How to measure standard of living
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gdp per capita (gdp divided population)
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What's wrong with GDP?
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Leaves out crime, pollution, etc.
Does not reflect quality of life
Does not reflect quality of life
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Expansion
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Period of Time when GDP is increasing
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Contraction
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Period of time when GDP is decreasing
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Business Cycle
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Declining GDP for 2 consecutive quarters
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Recession
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Long- term recession
Decreasing GDP and high unemployment
Decreasing GDP and high unemployment
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Depression
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the amount of goods or services that can be purchased with an amount of dollars
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purchasing power
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rise in the general (or average) level of prices of goods and services in an economy over a period of time.
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inflation
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measures average changes in prices paid by consumers in urban markets for a market basket of commonly purchased goods and services.
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Consumer Price Index
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the percentage change in CPI (Consumer Price Index) from one year to another
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Inflation Rate
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Compares value of market basket from one year to the next.
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Consumer Price Index
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Sustained decreasing GDP and high unemployment at the same time
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Stagflation
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- not have a job
- be looking for a job
- be willing and able to work (old enough, etc.)
- be looking for a job
- be willing and able to work (old enough, etc.)
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Requirements to be Unemployed
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- stay-at-home moms
- prisoners
- disabled
- full time students
- prisoners
- disabled
- full time students
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DO NOT count as unemployed
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# of Employed + # of Unemployed
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Civilian Labor Force
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# of Unemployed/ Labor Force x 100
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Unemployment Rate
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In between jobs
Career Change
Seasonal Unemployment
Career Change
Seasonal Unemployment
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Frictional Unemployment
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Fundamental Change in Industry
Technological Unemployment
Jobs ARE NOT coming back
Technological Unemployment
Jobs ARE NOT coming back
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Structural Unemployment
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Unemployment to due the business cycle, recession or depression
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Cyclical Unemployment
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The lowest possible unemployment rate that exists when the economy is growing (GDP) and all FOP are being used as efficiently as possible. (NO CYCLICAL UNEMPLOYMENT)
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Full Employment
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UR underestimates unemployment because it does not include discouraged workers, or people that are only working part-time because they cannot find full time work.
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What's wrong with unemployment rate?
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the various levels of output that will be PURCHASED at all price levels
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Aggregate Demand
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the various levels of output that will be PRODUCED at all price levels
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Aggregate Supply
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(Things that affect spending)
- Consumer Spending
- Business Spending
- Government Spending
- Net Exports
- Consumer Spending
- Business Spending
- Government Spending
- Net Exports
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Aggregate Demand Shifters
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(Things that affect producers and COST OF PRODUCTION)
- input costs
- productivity
- business taxes
- expected price levels
- input costs
- productivity
- business taxes
- expected price levels
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Aggregate Supply Shifters
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Higher demand for the same products "pulls" prices up
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Demand- Pull Inflation
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Higher input costs for producers "pushes" prices up
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Cost-Push Inflation
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