ECON 203: EXAM 2
47 Cards in this Set
| Front | Back |
|---|---|
|
inflation
|
percent increase in general price level;
usually measured in terms of the Consumer Price Index
|
|
Consumer Price Index (CPI)
|
average level of prices of goods typically bought by households;
measures cost of a market basket of goods and services the typical household purchases
|
|
deflation
|
percent decrease in general price level, usually measured in terms of CPI
|
|
steps to construct CPI
|
1) fix the basket
2) find current prices of goods in basket÷ 3) Calculate the cost of the basket 4) compare cost to a base year
|
|
CPI formula
|
(cost of basket in year x /cost of basket in base year)*100
|
|
inflation formula
|
(year x-year b/year b)*100
|
|
substitution bias
|
prices don't all change the same amount (%) for different goods;
prices of various goods don't ∆ proportionately
|
|
introduction of new goods
|
new goods are not entered into basket immediately
|
|
unmeasured quality change
|
if the quality of a good decreases, but price remains constant, your money is worth less
|
|
GDP vs. CPI
|
GDP measures production
CPI measures consumption
|
|
calculating dollar change over time
|
amount today $=(amount in year t $)*(price level today/price level year t)
|
|
indexation
|
index for inflation when corrected for changes in the price level over time
|
|
real interest rate
|
interest rate corrected for inflation;
describes how fast purchasing power increases
|
|
nominal interest rate
|
measures ∆$ amounts;
describes how fast # of $ in bank account rises
|
|
economic growth rate
|
%∆Real GDP annually
|
|
Real GDP per capita
|
measures living standards
|
|
real GDP per capita formula
|
real GDP per capita=Real GDP/population
|
|
living standards formula
|
∆living standards=%∆real GDP per capita
OR %∆Real GDP - %∆population
|
|
real GDP formula
|
(total labor hours worked)*(real GDP)/Hours worked
|
|
labor productivity formula
|
real GDP/hours worked
labor productivity=Y/L
|
|
determinants of productivity
|
1) physical capital/worker: give new equipment, produce more
2)human capital/worker: knowledge, skills, experience 3)natural resources/worker: provided by nature *4)technology knowledge: understanding the best way to produce goods
|
|
saving
|
takes place when an individual spends less than earned and uses the rest to buy stocks, bonds, or to put into a bank account; savers supploy loanable funds
income-purchases-taxes=saving saving=investment saving=private + public saving
|
|
investment
|
refers to purchase of new capital, such as equipment or buildings; investors demand loanable funds
investment=savings
|
|
financial system
|
links savers (or lenders) who have a surplus of funds and no productive use for it, with investors (or borrowers) who have productive uses for it, but face a fund shortage
|
|
financial markets
|
stock markets, bond markets;
direct finance
|
|
financial intermediaries
|
banks, mutual fund companies, insurance companies;
indirect finance; pool funds from many individual savers and lend them to borrowers
|
|
stock markets
|
stocks, or equities, represent partial ownership of a firm and entitle stockholders to a share of the assets of future earnings of the firm
|
|
equity finance
|
when firms raise money by issuing new stock
|
|
bond markets
|
bonds are financial claims issued by borrowers;
bonds promise to pay predetermined amounts at specific future dates
|
|
debt finance
|
when borrowers issue bonds
|
|
open economy
|
trades with other countries;
Y=C+I+G+NX
|
|
closed economy
|
no foreign trading;
Y=C+I+G
|
|
private saving
|
private saving=Y-C-T
|
|
public saving
|
public saving=T-G
|
|
debt
|
accumulation of all prior surpluses and deficits
|
|
market for loanable funds
|
determines interest rates;
gives insight into level of saving and investment and into the effects of policies on interest rates, saving, and investment
|
|
crowding out
|
tendency for increase in government deficit to decrease private investment;
government will "elbow" investors out of the way to get to savers' money to pay off deficit, not to invest in capital; done via taxes (typically)
|
|
frictional unemployment
|
voluntary;
just entering and reenting market, still skilled workers; caused by NORMAL serach time required to enter, reenter, or change within labor force
|
|
structural unemployment
|
needs of workers doesn't match needs of employeres;
mismatch of skills or location
|
|
cyclical unemploment
|
part of the business cycle;
fluctuation caused by expansion or recession creates or eliminates jobs; involuntary; decreases fluctuation of GDP
|
|
unemployment rate
|
frictional + structural + cyclical
|
|
natural rate of unemployment
|
theoretical concept;
full employment is impossible; natural=frictional + structural
|
|
unemployment rate formula
|
=#unemployed/# in labor force
|
|
labor force
|
anyone 16 years or older that in not institutionalized, a civilian, and either actively searching for a job or employed for a wage
|
|
labor force participation rate
|
=labor force/adult population
|
|
discouraged worker
|
someone who is part of the labor force that wants to work, but can't find a job, so he/she stops searching for a job;
no longer unemployed
|
|
efficiency wage
|
wage that minimizes total labor costs and maximizes profits;
pay higher than the market wage; able to pick the most productive workers, therefor highering fewer workers because your wages are competitive
|
Final Study Guide: Econ 203