Chapter 6

GDP VS REAL GDP

GDP is the total productivity annually within a country’s
borders
Real GDP is the total productivity annually within a country’s
borders after the adjusted price change

5 business cycle
Peak- real GDP is in the temporary high
Trough- real GDP is in the lower point and just begins to turn up
Contraction- a decline Real GDP. If the fall in two quarters
Recovery-when the Real GDP rises from Trough to the initial Peak
Expansion- when the Real GDP rises expands beyond the recovery

Shortcoming GDP
Excludes non-market activity
Ignore environmental problem
Chapter 7
Inflation
A continuing rising general level of prices

Demand pull and cost push inflation

Demand-pull Inflation
- caused by an excess of total spending beyond the economy’s capacity
to produce. (AD > AS)

Cost-push Inflation
- caused by rising per-unit production costs
- supply-side inflation ( increase wages, increase oil prices)
- reduces real output and employment.

Unemployment
Who are did not work but he has actively looked for work and is
available for work
• Job Loser: the employee or labor was fired
• Job Leaver: the employee or laborer quit the job.
• Reentrant: A person who was employed, hasn’t been for a period and is
currently reentering the labor force.
• New Entrant: A person who has never held a full-time job for two
weeks

Types of Unemployment
Frictional Unemployment: - due to the natural friction of the economy,
which is caused by changing markets. There are transferable skills.

Structural Unemployment: due to structural changes that eliminate some

jobs from the economy and do not have transferable skills.

Cyclical Unemployment: due to lack of demand for worker during

recession or depression

Who is Hurt by Inflation

• Fixed income receivers (real incomes fall)
• Savers (value of savings decline)

Who is Unaffected or Helped by Inflation

• Flexible-income receivers
• Property owners
Chapter 10
Definition of money
Any good that is widely accepted for purpose of exchange and
in the repayment of debts

Function of money
1) Money is a medium of exchange- money is used as
payment and acceptable in exchange for goods and services

2) Money is a unit of account- money is a measure of the

value of goods and services

3) Money is a store of value- money maintains its value over

times

4) Money as a standard of deferred payment- money used as a

means of valuing future receipts in loan contracts and
allowing payment later
Monetary Policy
Expansionary Monetary Policy
 the economy faces recession and unemployment
 The BNM decides that an increase in supply of money
 needed to increase aggregate demand.
 The BNM must Buy government bonds, lower the required
reserve ratio, and lower the discount rate

Contractionary Monetary Policy

 the economy faces inflation problem
 The BNM decides that decrease in supply of money
 needed to decrease aggregate demand.
 The BNM must sell government bonds, increase the required
reserve ratio, and increase the discount rate
Chapter 11
Tariffs
 A tax on import
 Revenue Tariffs- to provide the government with revenue
 Protective Tariffs- to protect domestic producers from
competition

Import Quota
 Limit on the maximum amount of a goods
Why Nations Restrict Trade?
1. National Defence Argument
 The country cannot depend on other countries for its
national defense and as such these industries should be
protected.

2. Antidumping Argument
 sale of goods at a price below their cost and below the
price charged in the domestic market.

3. Foreign export Subsidies Argument

 Some governments subsidize the firms that export goods.
It will decrease the production cost of the foreign
products.

4. Jobs Argument
 Trade destroys jobs in industries that are outcompeted by
imports from foreign products.