A market value of all final goods and services produced in a nation during a period of time, usually a year.
A government payment to individuals not in exchange for goods or services currently produced.
Finished goods and services produced for the ultimate user
Goods and services used as inputs for the production of final goods
Circular Flow Model
A diagram showing the flow of products from businesses to households and the flow of resources from households to businesses. In exchange for these resources money payments flow between businesses and households.
A rate of change in a quantity during a given time period measured in units per time period, such as dollars per year.
Example: Income and consumption are flows that occur per week month or year.
A quantity measured at one point in time; for example an inventory of goods or the amount of money in a checking account.
The national income accounting method that measures GDP by adding all of the spending for final goods during a period of time
GDP = C + I + G + (X - m)
The national income accounting method that measures GDP by adding all incomes including compensation of employees, net interest, rent and profits.
X - m : Exports - imports
Taxes - transfer payments
What businesses do, also the accumulation of capital such as factories, machines and inventories that are used to produce goods and services
Altering periods of economic growth and contraction, which can be measured by changes in real GDP
The phase of the business cycle in which real GDP reaches the maximum after rising during a recovery
a downturn in the business cycle during which real GDP declines; also called a contraction.
the phase of the business cycle in which real GDP reaches the minimum after falling during a recession
an upturn in the business cycle during which real GDP rises; also called an expantion
an expansion in national output measure by the annual percentage increase in a nation's real GDP
variables that change before real GDP changes
variables that change at the same time real GDP changes
variables that change after real GDP changes
the percentage of people in the labor force who are without jobs and are actively seeking jobs.
Civilian Labor Force
the number of people 16 years of age and older who are employed or who are actively seeking a job; excluding armed forces, home makers. discouraged workers. and other persons not in the labor force.
a person who wants to work, but who has given up searching for work because they believe there will be no job offers
unemployment caused by the normal search time required by workers with marketable skills who are changing jobs, initially entering the labor fore, or reentering the labor force, or seasonally unemployed
Unemployment caused by a mismatch of the skills of workers out of work and the skills required for existing job opportunities.
Unemployment caused by the lack of jobs during a recession.
The situation in which an economy operates at an unemployment rate equal to the sum of the frictional and structural unemployment rates
The difference between full employment real GDP and actual real GDP
An increase in the general (average) price level of goods and services in the economy
A decrease in the general (average) price level of goods and services in the economy
Consumer Price Index (CPI)
An index that measures changes in the average price of consumer goods and services. Consists of 80,000 different products
A year chosen as a reference point for comparison with some earlier or later year
A reduction in the rate of inflation, apparently (Inflation but slower)
The number of dollars received during a period of time (aka getting that)
The actual number of dollar received (nominal income) adjusted for changes in the CPI (aka, getting that and then yo girl goes shopping with some of it)
The value of the stock of assets owned at some point in time
Nominal Interest Rate
The actual rate of interest without adjustment for the inflation rates
Real Interest Rate
The nominal rate of interest minus the inflation rate
A rise in general price level resulting from an excess of total spending (demand)
An increase in the general price level resulting from an increase in the production cost
An extremely rapid rise in the general price level
A situation that occurs when an increase in nominal wage-rates are passed on in higher prices which in turn result in even higher nominal wages and prices
The automatic adjustment of an economic variable such as wages, taxes, or pension benefits to a cost of living index so that the variable rises or falls in accordance with the rate of inflation
Aggregate Demand Curve
The curve that shows the level of real GDP purchased by households, businesses, government and foreigners (net exports) at different possible price levels during a time period. ceteris peribus
Real balances or wealth Effect
The impact on total spending (Real GDP) caused by the inverse relationship between the price level and the real value of financial assets with fixed nominal value.
Interest Rate Effect
The impact on total spending (Real GDP) caused by the direct relationship between the price level and the interest rate
Net Exports Effect
The impact on total spending (Real GDP) caused by the inverse relationship between the price level and the net exports of an economy
Aggregate Supply Curve
The curve that shows the level of real GDP produced at different possible price levels during a period of time
The horizontal segment of the aggregate supply curve, that represents the economy in a severe recession
The rising segment of the aggregate supply curve, which represents an economy as it approaches full employment output
The vertical segment of the aggregate supply curve, which represents an economy at full employment output
The condition that occurs when an economy experiences the twin maladies of high unemployment and rapid inflation simultaneously
Things that shift the Aggregate Demand Curve
Changes in taxes
Changes in Government spending
Stock market wealth
Changes in world economy
What happens if Aggeregate Demand increases in the Keynesian Range?
The GDP goes up, Unemployment goes down, the Price Level does not change
What happens if Aggeregate Demand increases in the Intermediate Range?
GDP goes up, Price Level goes up, Unemployment goes down
What happens if Aggregate Demand increases in the Classical Range?
GDP does not change, Price Level goes up, Unemployment does not change
What happens if there is a rightward shift in the Aggregate Supply Curve?
GDP goes up, Price Level goes down, Unemployment goes down. All win.
What does Charlie Sheen do?
Things that shift the Aggregate Supply Curve
Changes in one or more non-price level determinants
Effects of Cost-Push Inflation
GDP goes down, Price Level goes up, Unemployment goes up #Losing
Causes Aggregate Supply Curve to shift left
Effects of Demand-pull Inflation
GDP goes up, Price Level goes up. Unemployment goes down #Notawful #Couldbebetter
Causes Aggregate Demand Curve to shift right
Shortcomings of GDP
Does not take in to account distribution of income
Underground economy (around 10%) missing
Includes the "bads" (ex: fixing jails)
Does not include "goods"
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