Term
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Definition
| The MARKET VALUE of all FINAL GOODS AND PRODUCTS produced in a COUNTRY during a given time period |
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Term
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Definition
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Term
| US Federal Deficit for 2013 |
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Definition
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Term
| What should be in the GDP but isn't? |
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Definition
1. Housework and childcare
2. Informal economy
3. Environmental input/degredation |
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Term
| What's included in the GDP but with substitutes for market value? |
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Definition
1. Government spending (including national defense)
2. Services of owner-occupied housing |
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Term
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Definition
| Defined by map, not ownership |
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Term
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Definition
| Same as GDP but country includes all the property ad individuals who are citizens but are physically abroad |
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Term
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Definition
1. Product Account (records final sales and expenditures)
2. Income account (shows incomes that accrue to workers, businesses, etc.)
3. Value-added account (records value added in each step of process) |
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Term
| What is equation fro product account? |
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Definition
y = C + I + G + NX, where NX = X - M
GDP = consumption + investments + government + net exports
Net exports = Exports - imports |
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Term
| Example product account GDP: Interest payments on federal gov debt |
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Definition
| Not part of GDP, because it's not a service or good |
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Term
| Example product account GDP: A homemade pizza |
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Definition
| The flour is added under personal consumption, the pizza is not part of GDP |
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Term
| Example product account GDP:Social security |
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Definition
| Not part of GDP, not a good or service (a transfer) |
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Term
| Example product account GDP:Tech support in India for US company |
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Definition
| It depend where this import is consumed. If it is for a home computer, it will show up in consumption. If it is on a government computer, it'll show up in government. |
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Term
| Example product account GDP:Ford Model T sold on Ebay |
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Definition
| Not part of GDP. It was not produced in the given time period. |
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Term
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Definition
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Term
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Definition
| GDP value in current monetary units.Sums all possible goods and services x value. However, it is misleading because if prices rise by, say, 10% in year 2 and people buy the same amount, GDP will rise 10% but people aren't better off since they're still getting the same goods. |
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Term
| Inflation (2 parts of definition), and how is it measured? |
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Definition
1. A general increase in prices throughout the economy.
2. The fall of value of the $.
It is measured by a change in a price index. |
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Term
| Define Consumer Price Index (2 parts) |
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Definition
1. A measure of overall cost of goods and services bought
2. Made to determine cost of living by a typical consumer each month |
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Term
| Define fixed weight real GDP |
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Definition
| A type of real GDP where price is held constant |
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Term
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Definition
1. Make a shopping list of goods and services
2. Find out how much shopping list costs per month
3. Make an index to compare cost of living in different months (divide the cost for each month by a base period so you have numbers instead of dollars. US uses base period of 100)
4. Calculate inflation (% change in the index) |
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Term
| Do CPI example calculation |
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Definition
| Sorry readers, this is in my personal notes. |
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Term
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Definition
1. Quality adjustment bias: new goods, like cars, are of better qualitly
2. Introducing new goods to the list, like iPods
3. Substitution bias: By using fixed weights, shopping list assumes consumers do not respond to price changes. |
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Term
| Define GDP implicit price deflater |
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Definition
| An index. Similar to GDP chain price index, but doesn't include imports and things not in the CPI (such as government expenditures,or airplanes) |
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Term
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Definition
| It excludes food and energy because they tend to be more volatile |
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Term
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Definition
| A way to fix substitution bias in CPI |
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Term
| Define Producer Price Index |
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Definition
| The average goods/services bought by firms in a given month |
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Term
| Equation for consumer price index |
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Definition
| = (Price of basket in current year/price of basket in base year) * 100 |
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Term
| Equation for inflation rate in year 2 |
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Definition
| = [(CPI in year 2 - CPI in year 1)/CPI in year 1] * 100 |
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Term
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Definition
| The automatic correction by law or contract of a dollar amount for the effects of inflation |
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Term
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Definition
| Falling prices (opposite of inflation) |
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Term
| Equation for Real Interest rate |
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Definition
| = Nominal interest rate - Inflation rate |
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Term
| Define nominal interest rate |
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Definition
| IR as usually reported without correction for inflation |
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Term
| Define real interest rate |
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Definition
IR corrected for the effects of inflation.
Note: Nominal IR is usually larger than real interest rates because the US has had rising consumer prices. During deflation, real interest rates are larger than nominal. So in the 1970s, real interest rates were negative because inflation eroded people's savings faster than nominal interest payments increased them. |
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Term
| Do example inflation question from notes |
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Definition
| Sorry readers, this is in my personal notes. |
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Term
| Do example Inflation and CPI from notes. |
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Definition
| Sorry readers, this is in my personal notes. |
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Term
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Definition
| The process of adjusting a dollar amount so its purchasing power stays constant (COLA: cost of living adjustment) |
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Term
| Do example Indexing question from notes |
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Definition
| Sorry readers, this is in my personal notes. |
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Term
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Definition
| The rate paid on the next $1 of income |
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Term
| Define average tax rate, with equation |
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Definition
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Term
| If someone's marginal tax rate is 39.6% after $400,000 is all their money getting taxed at 39.6%? |
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Definition
| No. Only the money they make that is after the first $400,000 is taxed at 39.6% |
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Term
| Do real interest rate example from notes |
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Definition
| Sorry readers, this is in my personal notes. |
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Term
| Explain Lespeyres Price Index (what it does, goal, example, and formula) |
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Definition
Keeps quantities fixed at base year levels.
Goal is to measure price changes.
Example: CPI
Formula: Cost of 2011 goods at 2012 prices / Cost of 2011 goods at 2011 prices |
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Term
| Explain Lespeyres Price Index (what it does, goal, example, and formula) |
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Definition
Definition: Keeps prices fixed at bse year levels
Goal: Remove price change
Example: Real GDP (fixed-weight real GDP)
Formula: Value of 2012 production at 2011 prices / Value of 2011 production at 2011prices |
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Term
| Equation (shortcut) for real interest rate |
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Definition
r = i - pi,
real interest rate = nominal interest rate - inflation rate |
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Term
| Does substitution bias cause CPI inflation to be overstated or understated? |
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Definition
| Overstated. The shopping cart is fixed, so the CPI assumes that people keep buying more of the increasingly expensive detergent, when in reality they tend to substitute to something cheaper. |
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Term
| Does substitution bias cause real GDP growth in a Paasche index to be overstated or understated? |
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Definition
| Overstated -- old computers, valuable and expensive in their day, are priced at today's prices |
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Term
| Does subsitutiton bias cause real GDP growth in a Laspeyres Price Index to be overstated or understated? |
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Definition
| Understated, because Laspeyres Price index keeps quantities fixed at the base year. |
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Term
| Explain Chain (Fisher) quantity index (what does it do, formula, example) |
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Definition
An index that gets teh substitution biases in the LAspeyres and Paashe indexes to cancel out. It's how real GDP is calculated now.
F = square root of L*P |
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