EXAM 1 STUDY GUIDE
EXAM 1 STUDY GUIDE 2105 025
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This 10 page Study Guide was uploaded by Christina Smith on Saturday February 13, 2016. The Study Guide belongs to 2105 025 at Georgia State University taught by Mr. Apperson in Winter 2016. Since its upload, it has received 83 views. For similar materials see Macroeconomics in Economcs at Georgia State University.
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Date Created: 02/13/16
STUDY GUIDE EXAM 1 VOCABULARY CHAPTER 6 Macroeconomics: The study of the economy of the entire nation or society. Determines what happens with the output of goods and services as they rise and fall. Microeconomics: The behavior of individual people, firms, and industries. Determine people’s decisions and how firms can compete with competitors. GDP (Gross Domestic Product): Measures Living Standards: Ability to have life’s bare necessities as well as education. Measures Economic Growth Measures Business Cycles The market value of all FINAL goods and services produced within a nation during a specific period of time. Measures a nation’s income and output. The sum of a business that produce goods. Money received for services is included in GDP and calculated using market values. GDP falls short because of inflation / and does not consider the under ground economy/ Non market goods /leisure time/ environmental costs. WHY MEASURE GDP? 1. To find Living Standards 2. Growth: How is it going to be 10 years from now? 3. Track short-run business cycles Per Capita: GDP per person (GDP divided by population) Average living standards in a nation Per Capita GDP: GDP per person Dividing the countries GDP by its population. Real Capita GDP: Generally looking at data over time. May not always be the best standard to compare countries Doesn’t adjust for population size of country Real GDP: Adjusted for changes in prices. Anytime GDP is evaluated over time, we have to use real GDP, so that we can find inflation. Measure of the value of economic output adjusted for price change. Nominal GDP: GDP measured in current prices, and not adjusted for inflation. All GOODS and SERVICES Price Level: An index to measure prices of goods and services throughout an economy. GDP Deflator: A measure if the price level that includes prices if the final goods and services included in gross domestic product. Economic Growth: Is measured as the percentage change in real per capita GDP. Not automatic or even typical Primary topic that macroeconomists study. Inflation: The growth in the overall level of prices in an economy. Causes GDP to go up even if there is no change in the quantity of the country’s goods and services. We have to adjust GDP based on the effects of inflation. Recessions: Short term economic downturns; usually last 6 to 8 months. Income levels fall Individuals loose their jobs and can’t find work. Great Recession: Lasts for about 19 months In 2008 the real GDP fell by almost 9% Business Cycle: Short run fluctuations in economic activity. On a Graph, the straight line represents the long-term trend of GDP. The slope of the line is the long-term growth of real GDP. The peaks and troughs divide the business cycle into two phases EXPANSION and CONTRACTION. Economic Expansions (Peaks): When the economy is growing faster than usual. Economy can also be shrinking. Economic Contraction (downward to trough): When the economy is growing at a slower rate than usual. Services: Outputs that provide benefits without the production of a tangible product. Intangible Is not stored and does not result in ownership. EX: Eating at a restaurant Intermediate Goods: Goods that firms can repackage or bundle with other goods for sale at a later stage. Used in the eventual production of a final good AVOID DOUBLE COUNTING INTERMEDIATE GOODS We only count the FINAL product. EX: Don’t count a resold used car/ don’t count a house that has been resold. Final Good: Good sold to final users and customers. Durable Goods: use over multiple years. / Buying computers Non-Durable Goods: EX: Coke, a product that you can use in one sitting Gross National Product: An alternative measure of national output that has been used in the past. Output produced by workers and resources owned by residents of the nation. An alternative measure of national output. Bureau of Economic Analysis Categories: Consumption and Investment Consumption: The purchase of final goods and services by households with the exception of new housing. Nondurable and durable. EX: Restaurant Meals/ Services/ Private Schools (because it is being funded by the people) Investment: Private spending on tools, plant and equipment used to produce future output. EX: Greenhouses/ Buying Homes. Government Spending: Includes spending by all levels of government on final goods and services Net Exports: EXPORTS minus IMPORTS of FINAL goods and services. Exports: Strawberries grown in another country and brought into ours. Imports Import and Consumption: EX: Someone buying a coke in Honduras. This doesn’t reflect the productivity of that country because it wasn’t produced there. CHAPTER 7 UNEMPLOYMENT: Part of the population looking for a job but doesn’t have one/ actively looking Employed: Part and full time/ doesn’t include children Labor Force: All the members of a particular organization or population, who are able to work, viewed collectively. Working part time but want to work full time (underemployed) (everything that is considered as labor force) Unemployment Rate: The percentage of the labor force that is unemployed. Creative Destruction: Occurs when the introduction of new products and technologies leads to the end of other industries Unemployment Insurance: Government program that reduces the hardship of joblessness by guaranteeing that unemployed workers receive a percentage of their former Income while unemployed. Natural Rate of Unemployment: Typical Rate of unemployment that occurs when the economy is growing normally. Full Employment Output: Output level produced in an economy when the unemployment rate is equal to its natural rate. Labor Force: Includes people who are already employed or actively seeking. Discouraged Workers: Those who are not working, have looked for a job in the past 12 months and are willing to work, but have not sought employment in the past 4 weeks Underemployed Workers: Those who have parttime jobs but who would prefer to work fulltime. Labor Force Participation Rate: The percentage of the population that is in the labor force. To find growth rate of unemployment: = unemployed/ employed + unemployed (labor force) X 100 = Endingbeginning/ beginning = # X 100 3 TYPES OF UNEMPLOYMENT Structural: An economy has a mix match between people looking for work (skills) and actual necessities from the company People looking for a job based on the skills that they have Frictional: Time it takes for someone to get matched for the job Cyclical: When someone is looking for a job but there are changes with the business cycle and varies on how the economy is doing. Discouraged Worker: In the past they applied for jobs but not anymore/ not in labor force or unemployed. Natural rate of employment: Rate of both Structural and frictional SHORTCOMINGS OF UNEMPLOYMENT RATE Recovery happens People reenter the labor force Unemployment rate can increase Leading Indicator: Predicts what is coming Data is available much quicker EX: building permit / arena because they know they will make a lot of money, they need to see the exact data. Lagging Indicator: Doesn’t tell what’s happening in the future Tells what happened in the past Labor Force Participation= Labor Force (NO MILITARY) Civilian + (NO KIDS)16 non institutionalized population X100 Relevant Population: These people are not Military, -16 age, Elderly Natural Rate Of Employment: Structural + Frictional Employment CHAPTER 8 Deflation: When inflation is negative Occurs when overall prices fall Inflation creates uncertainty for firms and workers Inflation is the growth in prices Consumers may change buying patterns We measure inflation through the bureau of labor statistics (also tracks unemployment). Consumer Price Index (CPI) How much a typical consumer spends The basket of goods are kept the same Measure of price level based on the consumption patterns of a typical consumer Chained CPI: A measure of the CPI in which the typical consumer’s “basket” of goods considered is updated Shoe leather Costs: The resources that are wasted when people change their behavior to avoid holding money. Money Illusion: Occurs when people interpret nominal changes in wages or prices as real changes. Nominal Wage: His or her wage expressed in current dollars. Menu Costs: The costs of changing prices Output: The production that a firm creates Capital Gains: Taxes on the gains realized by selling an asset for more than its purchase price. Concerns Substitution: When the price of A rises, we buy more B Quality Changes: Flat screen TVs vs. 1990s TVs New goods and services Countries with very high inflation: Venezuela, Ukraine, South Sudan, and Yemen. The Seven costs of Inflation: 1. Shoe- Leather costs 2. Money Illusion 3. Menu costs 4. Future price level uncertainty 5. Wealth redistribution 6. Price Confusion 7. Tax Distortion Chapter 13 Aggregate Demand: = C+I+G+NX The total demand for final goods and services in an economy. Aggregate Supply: Is this total supply of final goods and services in an economy. Wealth: The value of one’s accumulated assets. Wealth Effect: The change in the quantity of aggregate demand that results from wealth changes due to price-level changes Interest Rate Effect: Occurs when a change in the price level leads to a change in interest rates and therefore, in the quantity of aggregate supply. Supply Shock: A surprise event that changes a firm’s production costs. Short Run Supply: Positively sloped Time period in which not all prices have adjusted to some macroeconomic change Some prices adjust immediately, others don’t Output prices are more flexible and easier to change Output is increased to maximize profits Many firms are affected Causes short run to move upward Long run shifts: whenever the long-run AS curve shifts, it takes the short-run AS curve with it Factors that shift only the short run AS curve: Temporary supply shocks (Shift left), changes in expected future prices, adjustments to errors in past price expectations. Shifts in Supply Supply shock: an event that affects aggregate supply. EX: Drought, Hurricane, oil shock Long Run Supply: All prices have had the chance to adjust Always going to be vertical on the graph Y*= Natural rate of output What effects Long run Natural resources Changes in institutions Money Illusion: Occurs when people irrationally interpret nominal values as real values Workers are very reluctant to accept pay decreases even if we pay decrease is nominal Firms will reduce output in response to decreases in the price level, rather than to cut wages. EXAMPLES Americans expects prices to rise in the future? This scenario effects CONSUMPTION, meaning it will go up. Also, aggregate demand shifts to the right. Mexico becomes wealthier? Net Exports will go up, aggregate demand will go up and shift to the right. Business leaders believe the prospects for their businesses are improving? Investments will go up, aggregate demand will shift right. Prices cause an increase in the quantity of demand but don’t cause any shift NOTES REAL GDP= NOMINAL GDP PRICE LEVEL X BASE YEAR PRICE LEVEL GDP DEFLATOR= NOMINAL GDP REAL GDP X100 GDP= CONSUMPTION + INVESTMENT+ GOVERNMENT+(EXPORTS- IMPORTS ) GROWTH RATE: % CHANGE IN REAL GDP %= ENDING-BEGINNING BEGINNING X100 HOW TO CONVERT NOMINAL GDP TO REAL GDP: REAL GDP= nominal GDP PRICE LEVEL X100 PRICE LEVEL= PRICE IN YEAR X PRICE IN BASE YEAR X100 Labor Force Participation= Labor Force (NO MILITARY) Civilian + (NO KIDS)16 non institutionalized population X100 Quantity * Price = Market Value
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