MACRO STUDY GUIDE TEST 2 CHAPTERS 7 9 GDP final goods and services produced within a nation in a year Income wages rent profit capital interest Price Level cost of production Expenditures Consumption Investment Government Nx o Intermediate goods o Financial transactions o Secondhand sales Not Included NGDP GDP measured in terms of the price level at the time of measurement Not adjusted for inflation deflation RGDP NGDP x 100 CPI Consumer Price Index value of basket good in base year CPI value of basket good in current year NGDP RGDP RGDP value at base year prices o Only thing changing over time is quantity not price o Inflation and deflation are removed from calculations Able to discern true GDP how much production is increasing decreasing Shortcomings Underground economy Leisure Improved product quality Environmental effects Non economic sources of well being o Ex decrease in crime violence Distribution of income GDP Determinants of Economic Growth Quantity quality of natural resources Quantity quality of human resources Stock of capital goods Improvements in technology Spending Supply Factors Demand Factor Institutions Aiding Growth 1 Property Rights 2 Copyrights Patents 3 Education Literacy 4 Efficient Financial Institutions 5 Competitive Market System 6 Free Trade Growth Rate RGDP RGDPt 1 t RGDP t 1 x 100 U S 3 2 per capita 2 Country A Invested more resources in consumer goods Better quality of life C H A P T E R 7 G D P C H A P T E R 8 E C O N O M C G R O W T H I E C O N O M C I C H A P T E R 8 MACRO STUDY GUIDE TEST 2 CHAPTERS 7 9 PPC C a p i t a l G o o d s K Consumer Goods C Business Cycle RGDP Recession Peak Expansion Full Employment Trough Year Political events Financial instability Level of output and spending Fluctuates Irregular innovation Productivity changes Monetary factors Recession Problems Capital good industries fall faster than consumer based industries Durable goods are the most affected capital goods services food necessities 3 consecutive falling quarters 6 months C H A P T E R 9 B U S C Y C L E U N E M P O L Y M E N T I N F L A T I O N MACRO STUDY GUIDE TEST 2 CHAPTERS 7 9 Full Employment Unemployment Rate 5 frictional structural 1 UNEMPLOYMENT Labor Force 16 years Non institutionalized Looking for work at least 4 weeks Unemployment Rate unemployed x 100 labor force Underestimate 7 not bad more people entering labor force looking for work not good people leaving labor force Doesn t Include Location Discouraged workers Different categories of people race age sex Head of household Length of unemployment Part time workers wanting full time job Types Cyclical 2 o due to business cycle o most attention from government o laid off because of economic state Frictional 3 o friction that prevents mobility and availability of jobs o constant people go in and out o quit job and move for work short term voluntary o hardest to stop get rid of Structural 2 o job skills are no longer needed in the economy o inadequate education 2 INFLATION Inflation increase in general price level decrease in purchasing power of Measured using CPI complete market basket deflator Prices constantly fluctuate food gas energy Core inflation rate market basket without food and energy Inflation Rate CPI t CPI t 1 x 100 MACRO STUDY GUIDE TEST 2 CHAPTERS 7 9 CPIt 1 Current rate 1 5 Near 2 FED slows economy Hurt Money sitting in bank Fixed income Banks lenders Gain Borrowers Income Producers raise prices