Circular Flow Diagram- represents transactions in an economy
Product Market- place where goods and services are produced by businesses
Factor Market- place where household sell resources and businesses buy resources
Firms- organization that produces goods and services for sell
Household- person or group of people that share their income
GDP- total final value of all good and services produced in country's borders within a given year
GNP- total market value of all final goods and services by citizens of that country, on its land or foreign land
Included in GDP- Personal Consumption Expenditures, Gross Private Domestic Investment, Government Spending, and Net Exports
What is NOT included in GDP- Intermediate goods, used goods, purely financial transactions, illegal activity, unreported business activity, transfer payments, and non market activities
Calculating GDP
Expenditures Approach- add all spending on final good and services produced in a given year
Income Approach- add up all the income that resulted by selling all final good and services produced in a given year
Compensation of Employees- includes wages, salaries, fringe benefits, social security contributions, and health & pinching plans
Rents- income of property owner
Interest- Income from investments
Corporate Profits- income of corporation's stock holders
Proprietor's Income- income of entrepreneurs or partners
Budget- Governments purchase goods and service plus government transfer payments = government taxes and fee collection
Plus=Deficit
Negative=Surplus
Trade
Exports - Imports
Plus=Surplus
Negative=Deficit
National Income- Compensation of employees + Rental Income + Interest Income + Corporate Profits + Proprietor's Income
National Income- GDP- Indirect Business Taxes - Depreciation - Net Foreign Factor Payment
Disposable Personal Income- National Income- Personal Household taxes + Government transfer payments
Rule Of 70- Used to determine how many years it will take for a value to double given a particular annual growth rate
GDP Deflator- price index used to adjust from nominal to real GDP= Nominal GDP over Real GDP times 100
- In the base year, GDP Deflator will always equal 100
- In years after the base year, GDP is greater than 100
- For years before the base year, GDP's is less than 100
Consumer Price Index (CPI)
-Most commonly used measurement of inflation
- Price of a market basket in a particular year over the price of the same market basket
GDP Deflator of current year minus old year divided by old year times 100
Unemployment- failure to use available resources, particularly labor to produce desired goods and services
Labor force/ - above 16 years of age - able and willing to work
NOT in the Labor force/ - Military - Mental Institutions - Students - homemakers - retired
- jail or in prison - people who are not looking for a job
Unemployment Rate- 4 to 5% = Full Employment or Natural Rate of Unemployment
How to calculate the unemployment rate/ # of unemployed over labor force times 100
Types of Unemployment/
Frictional- searching for a job, in between jobs temporarily unemployed
- transferable skills
Structural- changes in the structure of the labor force make some skills obsolete
- workers have no transferable skills
Seasonal- due to the time of the year and nature of the job
Cyclical- unemployment that results from economic downturns
- as demand for goods and services fall, demand for labor falls, thus workers are laid off
Frictional + Structural = NRU
Full employment means NO Cyclical unemployment
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