Name: Period THE CIRCULAR FLOW MODEL MEASURING ECONOMIC PERFORMANCE PRODUCT MARKET BUSINESSES HOUSEHOLDS RESOURCE MARKET 1. AKA: 2. 3.
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GROSS DOMESTIC PRODUCT (GDP) GDP 6. DOES INCLUDE: 1. INTERMEDIATE GOODS 2. 3. 7. 4. 5. 8. TRANSFERS BETWEEN BANKS AND BUSINESSES
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= + + + Xn = ( - ) C Ig Counts for % of GDP. G Xn THE RULE OF VS.
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= + + + Wages represent about of the national income. Corporate profits are about of the national income. This method adds up to slightly than the expenditures approach. Directions: Calculate GDP using the expenditures method AND the income method. Item Value Federal government purchases of goods/services 250 Exports 80 Corporate Profits 85 Gross private domestic investment 170 Proprietor s income 85 Net interest 30 State and local purchases of goods/services 110 Rental Income 20 Personal consumption expenditures 660 Capital consumption allowance 140 Imports 105 Compensation of employees 8240
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GROSS NATIONAL PRODUCT (GNP) NET DOMESTIC PRODUCT (NDP) DEPRECIATION ALSO CALLED THE: DISPOSABLE INCOME Refer to the table on the previous page. Using the expenditures method, calculate NDP. Primarily, it does not take into consideration any factors that are not 1. KIND AND QUALITY OF PRODUCTS 3. OVERALL WELL-BEING 2. DISTRIBUTION 4. UNDERGROUND ECONOMY 5. OTHER NON-MARKET TRANSACTIONS
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GDP GAPS INFLATIONARY GDP GAPS RECESSIONARY GDP GAPS Recessionary gaps create, which represent. Directions: For each item below, tell whether or not it would count in 2012 GDP calculations. If YES, tell which category. If NO, explain why not. A. Your friends give you a $5000 check on your wedding day. B. A baker purchases 100-lbs of flour for use in the cakes he will sell. C. A used video game from Game Stop. D. Commission paid to a salesperson for selling you the used video game. E. BISD buys each student a new ipad. What would happen to U.S. GDP if Americans suddenly began purchasing more toys manufactured by factories in China? What if the plants that manufactured the toys in China were actually part of an American-owned company. Under those circumstances, would the increase in American consumption of toys produced in China have any effect on U.S. GDP?
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LABOR FORCE Sorry, but the following individuals are EXCLUDED from the labor force: 1. 2. 3. 4. 5. 6. You are considered to be EMPLOYED if. You are considered to be UNEMPLOYED if. You are considered to be a DISCOURAGED WORKER if. To calculate the UNEMPLOYMENT RATE, divide the number of people who are by the total number of people in the. Multiply by 100. # unemployed x 100 = Unemployment # in labor force Rate
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TYPES OF UNEMPLOYMENT CYCLICAL UNEMPLOYMENT STRUCTURAL UNEMPLOYMENT FRICTIONAL UNEMPLOYMENT SEASONAL UNEMPLOYMENT The NATURAL RATE OF UNEMPLOYMENT (NRU) is another term for NRU occurs when unemployment is at %. The unemployment rate is zero!
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INFLATION Inflation is good for. Inflation is bad for. PRICE INDICES CONSUMER PRICE INDEX (CPI) PROBLEMS WITH CPI THE BASKET BUREAU OF LABOR AND STATISTICS
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CALCULATING THE RATE OF INFLATION YEAR CPI PRICE OF AN ITEM 1900 25 1925 40 1950 60 1975 90 2000 115 $30 RATE OF CHANGE INFLATION RATE Calculate the inflation rate between 1925 and 1950. COMPARING PRICES Calculate the price of bread in 1925. BASELINE YEAR PRODUCER PRICE INDEX (PPI) GDP DEFLATOR
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CAUSES OF INFLATION COST-PUSH INFLATION DEMAND-PULL INFLATION THE COSTS OF INFLATION THE FISHER EQUATION SHRINKING INCOMES Irving Fisher EFFECT ON INTEREST RATES CHANGES IN WEALTH The bottom line: Inflation has a effect on each of these issues, which will eventually have a negative effect on. NOMINAL vs. REAL values
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The MISERY INDEX HYPERINFLATION Which of the following groups would most likely gain from unanticipated inflation? A. Landlords who own apartments in cities with rent controls. B. Individuals who have fixed retirement incomes. DISINFLATION C. Individuals who earn high incomes. D. Individuals who have borrowed money at fixed interest rates. E. Banks that have loaned all excess reserves at a fixed interest rate. If the unemployment rate is 8.5% and the inflation rate is 3%, what would be the current misery index? If the CPI in 1900 was 175 and the CPI in 2012 is 250, did I nflation occur? If so, calculate the rate of inflation that occurred. DEFLATION OKUN S LAW
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