ECON 202 1st EditionExam # 1 Study GuideJanuary 21 Major Sectors of the Economy-Business or firms (producers)- “I” ~ role: investment and spending-Households (consumers)- “C” ~ role: consume goods and services-Government - “G” ~ role: spends on public goods and services; provides safety -International - “Xn” ~ role: x-m  net export = export – import business and households  private sectorgovernment  public sectorinternational  foreign sector January 26Gross Domestic Product (GDP): market or money value of all final goods and services produced within 1 year within geographical boundary of US-sum of output from all economic activity -functions as a “barometer” for the economy Economic growth = outward shift of production possibilities curve January 28Business cycle: short run fluctuations in economic activity that can cause output to be above or below long run trend 4 phases of the business cycle *not like this in real life, do not know how long will last; this is called “idealized”*1. expansion (recovery)2. contraction (recession)3. peak (prosperity)4. trough (depression)Real GDP: GDP measure with prices held constant over timeNominal GDP: GDP measured with current pricesTo make not nominal (convert to real GDP), multiply the quantity by the baseline year (constant or original price)Price Level: an index to measure prices of goods and servicesReal GDP= Nominal GDP/Price Level x 100 Nominal GDP growth= GDP2009-GDP2008/GDP2008 x 100Has to be 2 consecutive years, % change in price level % change in real GDP + % change in price level = % change in Nominal GDPFebruary 2Unemployment: not working, but actively seeking workLabor force: people between the ages of 16 to retirement (65ish) who are employed or actively seeking work except those institutionalized, students, etc..Types of Unemployment- Seasonal unemployment: unemployed during particular season - Frictional unemployment: voluntary, between jobs- Structural unemployment: structure of economy changes- Cyclical unemployment: due to business cycle; caused by economic downturnsNatural Rate of Unemployment u*  natural expected: structural, frictional, and seasonaltypical rate of unemployment in a healthy economy difference between u* and u is cyclical Full employment output = Y* natural, Y actual February 4 Unemployment rate = u = (# of people unemployed)/(# of people in the labor force)Who is not in the labor force?-jobless people / discouraged workers-retirees-students-institutionalized civilians 2 groups of people in the labor force:-employed-unemployedUnderemployed: part time workers who want full time work, workers who are over qualified for job; considered employed (work at least 1 hour)Leading indicator: helps us predict what’s coming, and usually changes before economy as whole changeLagging indicator: usually changes after Labor force participation rate= labor force/population x100 Inflation: continuing rise in general price level; measures as growth rate in the average level of pricesDeflation: opposite of inflation …price levels fallConsumer Price Index (CPI): measure of the price level based on consumption pattern of a typical consumerGoal: include everything purchased by typical consumer to get a measure ofthe cost of living formula to calculate CPI = CPIt-CPIt-1 / CPIt-1 x100formula does not need two consecutive yearsBureau of Labor Statistics: gov. agency that reports inflation and unemployment data; determines how much “weight” to put in certain