Econ 104, Goffe, PSU EXAM WITH QUALITY SOLUTIONS

GDP the market value of all FINAL goods and services produced in a country during a period of time. GDP equation GDP(Y)=C (consumption) + I (investments) +G (gov purchases) +NX (net exports) Consumption expenditures made by households (excluding the purchase of a new house) Investment Final goods and services purchased by business firms (equipment for production and new buildings), changes in inventories (which is thee difference between production and sales), and residential construction purchased by households. Government Purchase Spending by the federal, state, and local governments Net Exports Exports-imports Real GDP Value of economic output adjusted for inflation or deflation Nominal GDP GDP evaluated at current market prices which doesn't account for inflation/deflation intermediate goods a good that is transformed in the production process EX: flour gets turned into bread, therefore it is an intermediate good final goods finished products purchased by the final user U.S. GDP 2016 (2nd quarter) $18.4 Trillion GDP per capita Measure of average income per person in a country per year U.S. GDP per capita 2016 $55,800 Money $$$$$$$$$ An asset that does each of the following: 1.) Medium exchange used for purchases 2.) A store of value 3.) Unit of accounting 4.) Standard of deferred payment M1 Cash and checkable deposits M2 M1+ Savings Accounts Interest Rate rate at which money is borrowed and lended FED's Dual Mandate To promote effectively the goals of 1)maximum employment, 2)stable prices, and moderate long-term interest rates Monetary Policy Changes in the interest rates,M1, and M2 to achieve dual mandate goals Fiscal Policy Changes in federal taxes and expenditures. Controlled by President and Congress If federal taxes fall, all else equal, GDP will ____________________ and Government spending will _________________________. GDP will rise G will not change GDP Deflator A way to measure prices. The GDP Def measures the avg prices in the economy through a comparison to the base year where the value is 100. Inflation a rise in prices Deflation a fall in prices Over a year, if nominal salaries increased 4% and CPI increased 1%, then real salaries would increase how much? 3%. Nominal salaries don't include inflation, so 4% (nom) - 1% (Inflation) = 3% (Real salary) Labor Force total number of people who have jobs plus the number of people who do not ave jobs, but are actively looking for one. Unemployment Rate Percentage of labor force that is unemployed Discouraged Workers People available for work, who are not actively looking for a job Labor Force Participation Rate Percentage of the working-age population in the labor force (% of those who are legally eligible to work, i.e. 16+) Frictional Unemployment Short-term unemployment that arises from the process of matching workers with jobs EX: College grad being unemployed for a few months after graduation Structural Unemployment Unemployment due to your skills now being obsolete. EX: machine or robot now doing the task you used to do by hand Cyclical Unemployment Unemployment due to the ups and downs of the Business Cycle Business Cycle A cycle or series of cycles of economic expansion and contraction