econ 100

• what is poverty?


  absolute levels of income (material wellbeing) among poor people
• inequality


  relative levels of income in a society as a whole
• child mortality


  share of children (born alive) who die before they are five years old.
• what type of inequality has become more important?

  between country inequality
• income= ______


  expenditure
• economy as a whole's income and expenditure


  1. every transaction has a buyer and a seller

  2. Every dollar of spending by some buyer is a dollar of income for some seller
• gross domestic product (GDP)


  Total market value of all final goods and services produced within a country in a given period of time.
• market value in GDP

  Output is valued at market prices
• goods and services in GDP

  Includes both tangible goods (food, clothing, cars) and intangible services (haircuts, doctors visits)
• what gets counted in GDP?


  items produced in the economy and sold legally in markets.
• what is excluded in GDP?

  most items that are produced and consumed at home and that never enter the marketplace and items produced and sold illicitly, such as illegal drugs
• what are the components of GDP?

  consumption, investment, government purchases, and net exports
• consumption


  The spending by households on goods and services, with the exception of purchases of new housing.
• investment


  The spending on capital equipment, inventories, and structures, including new housing
• government purchases


  The spending on goods and services by local, state, and federal governments.
• net exports


  exports minus imports
• How can we compute (average) income per person?


  GDP/population
• inflation


  refers to a situation in which the economy's overall price level is rising
• inflation rate


  Percent change in price level (from preceding period)
• nominal GDP


  values the production of goods & services at current prices, not corrected for inflation
• real GDP


  values the production of goods & services at constant prices, corrected for inflation
• GDP deflator


  Price index to deflate nominal GDP
• real GDP =?


  nominal GDP/GDP deflator x 100
• real GDP per capita


  Main indicator of the average person's standard of living
• equation for real GDP per capita

  real GDP/population
• what does higher GDP per person indicate?

  higher standard of living
• what contributes to well being that's not included in GDP?


  value of leisure, value of a clean environment, value of almost all activity that takes place outside of markets
• stock variables


  measured at a point in time
• flow variables


  measured per unit of time
• how do we compare GDPs across countries?

  exchange rate method and purchasing power parity (PPP)
• what is the exchange rate method?


  Use the market exchange rate (rate at which one currency trades for another) to convert to same currency (in practice, U.S. dollars)
• what is PPP?


  Use rate at which currency of one county would have to be converted to that of another country to buy the same amount of goods and services in each country
• gross national product (GNP)


  value of production by a country's nationals
• how do you compute long run economic growth rate?


  𝐺𝐷𝑃𝑡 = 𝐺𝐷𝑃0 (1+g)^t

  
  

  where GDP0 is initial growth rate and (1 + g)^t is annual growth rate
• doubling time


  70/annual growth rate (in %)
• what does total output (Y) of an economy depend on?


  factors of production, and technology (A)
• what are the factors of production?


  labor (L), physical capita (K), human capita (H), natural resources (N)
• what is the production function?


  Y= A F (L,K,H,N)
• productivity


  the amount of goods and services produced from each unit of labor input
• what is the productivity equation?

  productivity= Y/L

  
  

  where Y= real GDP/quantity of output produced, and L= quantity of labor