Transcript File - AP Economics

Formula Cards
GDP
Net Exports
Exports – Imports
X-M
Consumption
Gross Business
Investment
Government
Spending
GDP = C + Ig + G + Xn
Price Index
Price
Index
_Price
of
goods
in
a
specific
year_
=
X 100
Price of same goods in a base year
Nominal GDP
Nominal GDP = Units of output x price
GDP Deflator
GDP
Deflator
=
Nominal GDP
X 100
Real GDP
Real GDP
Real
GDP
=
Nominal GDP__
price index
(in hundredths)
Real GDP
Real
GDP
= Price of good in X quantity of good sold
base year
in given year
Rate of Inflation
Rate of
Inflation
Year
later
CPI
–
Year
earlier
CPI
=
X 100
year earlier CPI
Unemployment Rate
Unemployment
Rate
unemployed
=
labor force
X 100
change
Percent
change
=
Year 2 – Year 1
Year 1
X 100
I. Circular Flow Diagram
A. Resource Market and Factor Market
1. Households own factors of production – sell them to Firms
2. Firms buy factors of production – pay wages, rent etc.
B. Product Market
1. Firms sell goods and services to households
2. Households pay for goods and services
Formula
The expenditures approach - C +CIg+ +IgG+ +GXn
+ Xn
= GDP
= GDP
1. C = Personal Consumption
a. Purchases of finished goods and services
b. NOT houses or other construction
2. Ig = Gross Private Business Investment
a. Factory equipment maintenance
b. New factory equipment
c. New Construction (houses or factory)
d. Unsold inventory of products build in a year, but not
sold in that year
3. G = Government Spending
4. Xn = Net foreign factor of Trade: Exports minus Imports
a. Exports = dollars in
b. Imports = dollars out
c. Since WWII, Xn has usually been a negative number
https://www.
youtube.com
/watch?v=SYF
Yla1H7KE
What doesn’t count in GDP
1. Second hand goods
2. Gifts or transfers (social security welfare etc.)
3. Stock market transactions
4. Unreported business activities
5. Illegal activities
6. Financial transactions between banks and businesses
7. Non market activities like volunteer work
Does it Count?
The bicycle you got at the neighbor’s garage sale.
The designer shoes you found half price at
Nordstrom
Your new back to school lunchbox
Grandma’s Social Security Check
The value of the time you spend volunteering at the
local animal shelter
The $20 cash you earned babysitting.
The $20 you paid for a pedicure.
The $20 you paid to a “street
pharmacist”
The $20 worth of girl scout cookies you
bought
GDP PRACTICE QUESTION
GDP in an economy is $3452 billion.
Consumer expenditures are $2343 billion,
government purchases are $865 billion and
gross investment is $379 billion. What are
Net exports?
GDP in an economy is $3452 billion. Consumer expenditures are $2343 billion,
government purchases are $865 billion and gross investment is $379 billion.
What are Net exports?
Formula to use -- C + Ig + G + Xn = GDP
$3452 + $379 + $865 + Xn = $3452
$3587 + Xn = $3452
Xn = -135
Business Cycle – alternating rises and declines in economic activity
A. Peak – business activity has reached a temporary maximum
B. Recession – decline in total output, income, employment, and
trade
C. Trough – output and employment are at their lowest levels
D. Recovery – output and employment rise toward full
employment
Inflation – rise in general price level
A. Measuring inflation
1. CPI – consumer Price Index
a. One measure of inflation
b. Measures the cost of a consistent market basket of
goods
2. When using Price indexes – the Index year is always 100
Rate of inflation =
Year later CPI - year earlier CPI X 100
Year earlier CPI
Disinflation – lowering of the inflation rate
Deflation – lowering of price level
Hyperinflation – extremely rapid inflation
Who isn’t in the labor force
1. under 16
2. in the military
3. institutionalized
4. retired
5. homemakers
6. students
7. discouraged workers
Who does count as part of the labor force
1. full time workers
2. part time workers (even if they would rather be working
full time
3. unpaid family workers
4. those on sick leave, vacation, or strike
5. looking for work
Types of Unemployment
Frictional unemployment – those between jobs
Structural unemployment
1. Caused by changes in consumer demand
2. Change in technology
3. Geographical changes
Cyclical unemployment – in the recession stage of the
business cycle
What does the rate mean
1. 0% - 3% - overextended economy
2. 4 – 5% - full employment
3. 6% + - weak or recession economy
4. 25% - highest unemployment 1933
What Type of Unemployment is it?
Frictional
Cyclical
Structural
Not unemployed
A computer programmer is laid off
because of a recession.
Cyclical
An unemployed college graduate is
looking for his first job.
Frictional
A college graduate works at a job that
does not require a college education.
Not unemployed
Advances in technology make the
assembly-line worker’s job obsolete.
Structural