Definitions and Concepts Factors of Production: land, labour, capital, entrepreneurship Real Flow: goods and services Money

Flow: real financial transactions Nominal GDP: The dollar value of all goods and services produced within a country using the countrys current prices in any particular year. Real GDP: The REAL value of final goods and services produced within the borders of a given country during a given time period, typically a year. CPI (Price Index): a measure of the price in a specific year as compared to the price of an identical (or highly similar) collection of goods and services in a reference year GDP Deflator: a measure of the level of prices of all new, domestically produced, final goods and services in an economy Unemployment: A failure of the economy to fully employ its labour force -Frictional: unemployed due to switching jobs or graduation -Structural: unemployed because they do not fit with company and are outdated -Cyclical: unemployment because of falling part of business cycle -Seasonal: unemployed because the job they are in cannot be performed due to a change of season Inflation: an increase in the overall level of prices Final Goods: any good used for final consumption Intermediate Goods: purchased for resale of further processing Depreciation (capital consumption allowance): a decrease in the overall level of prices

Business Cycle:

Labour Force: includes all the people who are capable of working or being employed Unemployment Rate: total labor force that is unemployed but actively seeking employment and willing to work Discouraged Workers: A person who is eligible for employment and is able to work, but is currently unemployed and has not attempted to find employment in the last four weeks. Natural Rate of Unemployment: The lowest rate of unemployment that an economy can sustain over the long run. Okuns Law: The relationship between an economy's unemployment rate and its gross national product (GNP). Types of Inflation: Demand Pull: When the aggregate demand in an economy strongly outweighs the aggregate supply, prices increase. Cost Push: A phenomenon in which the general price levels rise (inflation) due to increases in the cost of wages and raw materials.

Formulas

Re alGDP =

no min alGDP ! 100 priceindex Pr iceIndex ! Re alGDP 100

No min alGDP = Pr iceIndex = Pr iceIndex =

no min alGDP ! 100 realGDP Pr iceinspecificyear ! 100 Pr iceinbaseyear

Depreciation = Gross investment - net investment Value added = Output Value - Input Value GDP Expenditure Approach = Consumption + Gross Investment Spending + Govt Spending + Net Export Xn (Net Exports) = Exports - Imports Ig (Gross Investment Spending) = Investments + Depreciation PDY(Personal Disposable Income) = (Consumption + Savings) PY (Personal Income) = PDY + Personal Taxes

GDP Gap = Actual GDP - Potential GDP

Inflation =

P 2 ! P1 " 100 P1 GDP 2 ! GDP1 " 100 GDP1

GDPGrowth =

Years to double = Rule of 70 = 70/ annual growth rate Unemployment Rate = (Unemployed Workers looking for work / Total Labor Force) * 100