1. Define GDP. The market value of all final goods and services produced within a nation in a given time period

Transcription

1 Economics

2 1. Define GDP. The market value of all final goods and services produced within a nation in a given time period

3 2. GDP represents the aggregate or the whole economy.

4 3. List the 4 components of GDP and define each. C: represents Consumption This is all the spending by households on durable goods, nondurable goods, and services I: represents Investment (NOT stocks and bonds) This measures fixed investment and inventory investment

5 G:represents Government Spending Includes all expenditures of federal, state, and local governments on goods and services X n: represents Net Exports

6 4. Nominal GDP: GDP that is stated in the price levels for the year in which the GDP was measured (the figure we see in the newspaper)

7 5. Real GDP: states GDP corrected for changes in prices from year to year (adjusted for inflation) We find real GDP by: comparing nominal GDP to a base year

8 6. Which type of GDP is a better measure of standard of living? real GDP per capita

9 7. To be counted in a GDP a good must be: It must be a final good rather than an intermediate good It must be produced during the time period counted by GDP It must be produced within the U.S.

10 8. Something not counted in GDP is: A mother who stays home to raise her children (a nonmarket activity) Things in the underground economy (sale of illegal drugs, black market goods)

11 9. Aggregate demand: The total amount of goods and services that households, businesses, government, and foreign purchasers will buy at each price level

12 10. Business cycle: periods of expanding and contracting economic activity A. Parts of the business cycle are: Expansion Peak Contraction Trough

13 B. Recession: an economic downturn that lasts 6 months or more 2 signs/characteristics of a recession are: Slow growth in the housing market (or many homes for sale or foreclosed upon), more unemployment or massive layoffs, businesses cutting back on production, banks giving out less loans

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15 11. Full employment is considered 4-6% unemployment.

16 12. Unemployment is calculated by dividing: The number of unemployed by the civilian labor force

17 13. To be considered unemployed, you have to be: Actively looking for work

18 14. Structural unemployment: a situation where jobs exist but workers looking for work do not have the necessary skills for these jobs An example: losing your job due to a technological advancement

19 15. Frictional unemployment: temporary unemployment experienced by people changing jobs An example: an accountant who quits her job to find a job as a manager at an accounting firm

20 16. Cyclical unemployment: unemployment caused by a part of the business cycle with decreased economic activity An example: a worker losing his job due to a recession

21 17. Seasonal unemployment: unemployment due to seasonal work An example: a lawn care company shuts down during the winter

22 18. Discouraged worker: when the unemployed lose faith in their ability to find a job

23 19. Underemployed: working part-time when someone wants to be full time, or working at a job below your skill level

24 20. Inflation: sustained rise in the price level; less purchasing power per dollar

25 21. Deflation: decrease in the price level

26 22. Hyperinflation: rapid, uncontrolled price increase in excess of 50 percent per month

27 23. Stagflation: high inflation and high unemployment

28 24. Demand-pull inflation: scarcity of goods and services that then drives up prices

29 25. Cost-push inflation: increases in production costs cause an increase in prices

30 26. Poverty: situation in which a person's income and resources do not allow him or her to achieve a minimum standard of living

31 27. The CPI measures: the change in the price of goods and services purchased by consumers (inflation rate) And, it uses a market basket of goods to determine if prices have risen.

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33 28. Globalization: The integration of economies and societies around the world.

34 29. Comparative vs. absolute advantage: Comparative advantage: a nation who can produce a good at the lowest opportunity cost will specialize in it Absolute advantage: ability of one trading nation to make a product more efficiently than another trading nation

35 30. Law of comparative advantage: idea that countries gain when they produce items they are most efficient at producing and are at the lowest opportunity cost

36 31. Outsourcing: One benefit/advantage is: saves time and may be more cost effective for a business to move production overseas (meaning more profits for the business One negative effect/disadvantage is: potential loss of manufacturing and service jobs in the U.S.

37 32. Protectionism: restricting imports to help domestic markets thrive (or infant industries)

38 33. Tariff: a tax on an imported good

39 34. Quota: limit on the amount of a product that can be imported

40 35. Voluntary export restraint: limits trade without going to a more harsh barrier such as a tariff or quota

41 36. Embargo: a law that cuts off trade with a specific country

42 37. Foreign exchange market: where the currencies of different countries are bought and sold

43 38. Balance of payments: A record of all individual, business, and government transactions between one nation and those of the rest of the world

44 39. Balance of trade: the difference between the value of a nation s imports and exports

45 40. Free trade: a specific region in which trade between nations takes place without protective tariffs

46 41. NAFTA: organized to benefit Canada, Mexico, and the United States

47 42. EU: the economic and political union of European nations established in 1993

48 43. Infant industry: a new industry that is unable to compete against larger more established competitors

49 44. Protective tariff: trade barriers between nations to protect domestic industries

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51 45. Things that slow economic development include: Lack of infrastructure Low literacy rates Low life expectancy

52 46. Per capita GDP: a measure of a country s wealth per person

53 47. Human capital: people and their knowledge and skills

54 48. Physical capital: machines that are used to produce other goods

55 49. Characteristics of developing nations include: Transitioning from agricultural to industrial economies Wide income gap between the rich and the poor Lack access to electricity and clean water

56 50. 3 characteristics of LDCs are: Industry tends to be less developed Lower GDP Lower standard of living

57 51. Sustainable development: countries want to make sure they have enough resources for future generations

58 52. The IMF helps nations in debt to: restructure debt to foster economic growth and encourage the practices of a free market economy

59 53. The country of Econville has just formed. It wants to become a developed nation. Identify two characteristics it must have to do so. Infrastructure Market economy High GDP Private ownership of property Stable government