ECO 105 Goel Exam 3 Study Guide
ECO 105 Goel Exam 3 Study Guide ECO 105
Popular in Principles Economics
verified elite notetaker
Popular in Economcs
This 5 page Study Guide was uploaded by Daniel Hemenway on Thursday October 29, 2015. The Study Guide belongs to ECO 105 at Illinois State University taught by Rajeev Goel in Fall 2015. Since its upload, it has received 115 views. For similar materials see Principles Economics in Economcs at Illinois State University.
Reviews for ECO 105 Goel Exam 3 Study Guide
Report this Material
What is Karma?
Karma is the currency of StudySoup.
You can buy or earn more Karma at anytime and redeem it for class notes, study guides, flashcards, and more!
Date Created: 10/29/15
ECO 105 Goel Study Guide INTRODUCTION Economic Growth LR increase in the total goods and services produced bu the economy Long term effects on the economy Economic Growth can also be represented by an outward shift on the PPF Business Cycle SR upward and downward movements in the output of an economy Business cycle has short lived effects on the economy Four Phases of Business Cycle DownturnRecessionDepression More Severe Trough Expansion Recovery Peak Recession occurs when the real output I the economy declines for 6 months or more Depression is a severe downturn in the economic activity for a long period Unemployment Labor Force Number of people employed Number unemployed Unemployment Rate Number of persons unemployed number of people in the labor force Natural Rate of Unemployment That unemployment rate at which there is an approximate balance between the number of unfiled jobs and the number of qualified job seekers Natural rate of unemployment is also referred to as full employment Inflation Inflation General increase in prices Deflation General decrease in prices Hyperinflation Very rapid and accelerated rate of inflation Rate of Inflation The rate at which the price level measured by a price index is changing Measuring Inflation Price Index Shows the cost of buying the same market basket of goods in different years as a percentage of its cost in some base year CPI Consumer Price Index Measures the level of consumer prices paid by households over time Narrow measure ECO 105 Goel Study Guide GDP Gross Domestic Product Deflator Measures the level of Prices of all final goods and services consumer goods investment goods and Government produced by the economy Broad measure Effects of Inflation Inflation redistributes income affecting the standard of living Redistributes income away from people who have underestimated it Inflation creates inefficiencies Businesses focus more on anticipating inflation than on more productive efforts Inflation spurts speculation Inflation creates uncertainty so that Adam Smith s invisible hand works less efficiently MEASURING AGGREGATE OUTPUT Measuring GDP 1GDPCIGX M C Personal consumption expenditures I Investment spending G Government purchases including federal state and local govt s Net Exports X Exports M Imports Foreign Savings M X 2 GDP Compensation of Employees Proprietor s Income Rental Income Corporate Profits Interest Depreciation Indirect Bus Tax GDI Gross Domestic Income Approximate sum of all income earned by factors of production 3 GDP Total Sales Purchases ie the sum of the value added of all industries Net Output or Value Added Value of industry output minus the value of purchases from other industries ECO 105 Goel Study Guide Omissions from GDP Nonmarketed goods and services ie Household production Illegal Activities ie Illegal gambling Value of Leisure Transfer Payments Payments to recipients who have not earned them through the sale of their production factors and who have not supplied current goods and services in exchange for these payments ie subsidies grants Real and Normal GDP Real GDP Removes the effect of rising prices on nominal GDP Real GDP per Capita Real GDP Population The best measure of living standards GNP Gross National Product w The final output produced by US residents whether in the US or abroad In contrast GDP includes goods and services produced by labor and capital in the US whether or not suppliers are residents of the US NNP Net National Product GNP Depreciation National Income NNP Indirect Bus Taxes Payments made to all factors PPP Purchasing Power Parity A rate for converting one economy s output into the prices of another country It is the exchange rate between two currencies that equates the real buying power of both currencies ECONOMIC GROWTH Economic Growth Growth Rate or Real GDP Shows the extent to which the total output of the economy is increasing Growth Rate or Real GDP per Capita Shows the extent to which the economic wellbeing of the average person is increasing Paul Romer Productivity Labor Productivity output per unit of labor average product of labor Capital Productivity output per unit of capital average product of capital Total Factor Productivity TFP output per unit of combined labor and capital input The growth rate of TFP is approximately the growth rate of real output minus the growth rate of combine factor inputs ECO 105 QL Real GDP Goel Study Guide Per Capita Production Function Shows the relationship between Real GDP per Capita and the capital stock per capita KC Neoclassical Growth Model Solow 19505 explains economic growth by virtue of capital accumulation population growth and unexplained technical progress Endogenous Growth TheoryNeoSchumpeterian Romer Base explanation of technological progress on the desire for profit Innovations may be product innovations or process innovations Current innovations make future innovations easier Factors Generating Economic Growth Human Knowledge Saving and Investing Political Stability Government Consumption International Trade AGGREGATE DEMAND AND AGGREGATE SUPPLY SR Production Function Shows the output produced with a given amount of employment when capital and technology are fixed Real wages are money wages divided by the Price level WP Natural Level of Output Real GDP That level corresponding to equality in the Demand and Supply of Labor Natural Rate of Unemployment The rate at which the labor force is in balance number ofjobs available number ofjob seekers Aggregate Supply AS AS curve shows the amount of Real GDP Firms in the economy are prepared to supply at different Price levels ECO 105 Goel Study Guide 0 Aggregate Demand AD AD Curve shows the Real GDP that households businesses government and foreigners are prepared to buy at different prices Three major factors cause AD to be negatively sloped The real balance effect that interest rate and the foreign trade effect Real Balance Effect Occurs when desired consumption falls as increases in the price level reduce the purchasing power of money 0 Interest Rate Effect Occurs when increases in the price level push up interest rates in credit markets which lowers real investment 0 Foreign Trade Effect Occurs when a rise in the Domestic Price level lowers the Aggregate Quantity Demanded by pushing down net exports X IVI Classical Model an increase in prices should have no effect on the real output supplied in an economy if Prices wages and other costs are all rising at the same rate when wages and prices are flexible AS is vertical at the natural level of output Price AS level RGDP Keynesian Model When wages are sticky inflexible falling prices raise real wages and firms reduce their employment and output AS therefore has a positive slope Price I AS evel Wages Inflexible Prices Flexible RGDP
Are you sure you want to buy this material for
You're already Subscribed!
Looks like you've already subscribed to StudySoup, you won't need to purchase another subscription to get this material. To access this material simply click 'View Full Document'