Unit 2 Measurement of Economic Performance 12-16% 7-10 MCQs – all 3 SAQs.

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Presentation transcript:

Unit 2 Measurement of Economic Performance 12-16% 7-10 MCQs – all 3 SAQs

Chapter Review Chapters 5 & 7

The Circular Flow Households/Consumers Functional Distribution of Income (Wages, Rents, Interest, Profits) Personal Consumption Expenditures (Goods and Services) Business/Producers Closed System

The Circular Flow + Injections Government Purchases and Transfers Investment Exports

The Circular Flow + Leakages Savings Taxes Imports

Gross Domestic Product 1 Gross Domestic Product The total value of all final goods and services produced in a given year. Final vs. Intermediate goods NO financial transactions NO secondhand sales Income vs. Expenditures Approach

GDP 2 Income vs. Expenditures Approach C + G + I + Xn Wages + Rents + Interest + Profits Nominal vs. Real GDP Nominal – GDP without adjustments (value at current prices) Real – GDP adjusted for inflation (value at base-year prices)

GDP 3 Price Index – the Market Basket Determining Real GDP Dividing Nom GDP by Price Index Shortcomings of GDP Leisure, non-Market activities, Underground Economy, “Well-being”

Chapter Review Chapter 8

Economic Growth An increase in GDP occurring over some time OR per capita Source of Growth Productivity Factors of Production Business Cycle

Unemployment 1 Population Under 16 and Institutionalized Not seeking employment Labor Force Able, Willing, Working Seeking Employment Discouraged Workers Part-Time Workers

Unemployment 2 Frictional Unemployment – Search and Wait Structural Unemployment – Change in Structure Cyclical Unemployment – Change in Demand

Unemployment 3 Full Employment Economic Costs of Unemployment GDP Gap Okun’s Law – for every 1% by which the actual unemployment rate exceeds the natural rate, a negative GDP gap of about 2% occurs Unequal Distribution of Pain of Unemployment

Inflation 1 Prices Rise and Purchasing Power Lowers CPI Types of Inflation Demand-Pull – too much spending chasing too few goods Cost-Push – supply shocks

Inflation 2 Nominal vs. Real Income Real Income is Nominal divided by the Price Index Anticipated vs. Unanticipated Inflation Hurt and Helped/Unaffected Fixed-income, savers, creditors Flexible-income, debtors Mild- vs. Hyper-inflation

Curriculum Outline II-A – National Income Accounts Circular Flow, GDP, Components of GDP, Real vs. Nominal GDP II-B – Inflation Measurement and Adjustment Price Indices, Nominal vs. Real Values, Costs of Inflation II-C – Unemployment Definition and Measurement, Types of Unemployment, Natural Rate of Unemployment

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