44 Cards in this Set
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macroeconomics
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the study of the aggregate (total) effects on the national and global economy of the choices that individuals, businesses, and governments make.
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GDP
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The value of all goods and services produced within an economy over a period of time, usually a year. (Reflects the output method of calculation)
GDP = C+I+G+(X-M). (Reflects the expenditure method of calculation)
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Real GDP
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Output (GDP) measured at constant prices; account for changes in quantities; better indicator of real production; purchasing power
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nominal gdp
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the value of all the final goods and services produced in the economy during a given year, calculated using prices from a given year in which output is produced
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Inflation
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A percentage change in the CPI between 2 years.
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GDP deflator
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a measure of the price level, calculated by dividing nominal GDP by real GDP and multiplying by 100
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CPI
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consumer price index, measure of overall cost of goods/services bought by typical consumer
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Calculation of CPI
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1) fix the basket
2) find the prices
3) compute the basket's cost
4) choose a base yr. and compute the index: (Price of basket of G&S in current yr./Price of basket in base yr.) x 100
5) compute inflation rate: ((CPI in yr. 2 - CPI in yr 1)/CPI in yr. 1)) x 100
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inflation rate
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the percentage increase in the price level from one year to the next
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Per Capita RGDP equation
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Ypc = RGDP/population
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Why do economists use RGDP per capita instead of NGDP per capita when looking at growth? Why economists use RDGP per capita instead of just RGDP?
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Nominal GDP can be misleading because it does not adjust for different prices over time. Use RGDP per capita so that we can see
Use RGDP per capita so that we can see how much output each person receives. In order for welfare to improve each person needs to be receiving more
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per capita growth rate
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helps predict how populations will grow; [r = births - deaths]
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Labor Productivity
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total output/total hours worked
*when labor productivity grows, avg. hourly compensation grows by same proportional amount
*if you put a limit on hours worked then output will decrease but productivity will increase
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national savings
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total income on economy after paying for consumption and government spending
y- C - G = I
aka
S=I
saving must equal investment
S= y- C -G
= (y- T- C) + (T-G)
^^ shows deficit of surplus
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private savings
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income households have left after taxes and consumption
Y-T-C
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Crowding Out
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increase in public spending causes a decrease in private spending
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Supply and Demand for Loanable Funds
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-Depends on the real interest rate
- An increase in the real interest rate increases the supply of loanable funds (from national savings)
- An increase in the real interest rate decreases the demand for loanable funds for investment and reduces NCO
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U Rate
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(Number of Unemployed / Labor force) * 100
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Labor Force Participation Rate (LFP)
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LFP= labor force/total population X 100
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BLS
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Measuring unemployment is the job of the Bureau of Labor Statistics (BLS), which is part of the Department of Labor.
The BLS computes unemployment rates for the entire adult population and for more narrowly defined groups such as blacks, whites, men, women, and so on
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Supply and Demand in the Labor Market
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Demand for labor depends on both the productivity of labor and the price that the market sets on workers’ output.
Diminishing returns to labor: if the amount of capital and other inputs in use is held constant, then the greater the quantity of labor already employed, the less each ad…
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labor unions
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an organization of wage earners or salaried employees for mutual aid and protection and for dealing collectively with employers; trade union
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theory of efficiency wages
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firms find it profitable to pay wages above the equilibrium level since higher wages can improve worker health, lower worker turnover, raise worker quality and increase worker effort
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Money
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the most easily traded thing in society. Economist call it the most liquid commodity.
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Types of money
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commodity money: (precious metals, cigarettes)
fiat: paper decreed by government
checks: instruction to bank
electronic payment: online bill pay
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Three vital functions of money
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Medium of exchange
Measure of value
Store of value
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Federal Reserve System (Federal Reserve)
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`The central bank of the United States Also known as "The Fed," the Federal Reserve is the banker's bank. It monitors the money supply.
-There are twelve of them
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recession
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decline in real output that persists for more than two consecutive quarters of a year
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economic depression
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a period of low economic activity marked by high unemployment
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Aggregate Demand
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The total amount of spending on goods and services (includes all sectors of GDP) in an economy.
total spending C+I+G+(X-M)
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aggregate supply
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the total amount of goods and services available in the economy
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shifts in the aggregate demand curve
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changes in wealth
changes in expectations
size of the existing stock of physical capital
fiscal and monetary policy
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Shifts in Aggregate Supply Curve
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Change in Resources (more labor, more output)
Change in Resource Prices
If wages decrease then cost increase and supply decrease
Changes in Technology (improvement leading to better productivity)
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Components of Aggregate Demand
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Consumption
Investment
Government Spending
Net Exports (Exports - Imports)
C + I + G + (X-M)
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demand shock
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a change in spending that shift's the economy's aggregate expenditure demand curve called "AD"
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SRAS Curve
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Curve showing relationship between price level and quantity of real GDP produced by firms when resource prices don't change.
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LRAS Curve
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-- shows the relationship between the price level and quantity of output after decision-makers have had time to adjust their prior commitments, or take steps to counterbalance them, when the price level changes.
--Change in price level does not affect quantity supplied in the long run.
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Recessionary gap
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The amount by which the aggregate expenditures schedule must shift upward to increase the real GDP to its full-employment, noninflationary level.
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Inflationary Gap
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the difference between current and full employment production is above full employment production
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stagflation
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when the economy is not growing and prices are rising.
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monetary policy
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the use of changes in the amount of money in circulation to alter credit markets, employments and the rate of inflation
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Disposable income
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GDP+TR-T
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Private Savings
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DI-C
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Public Savings
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T-(G+TR)
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ECON 222: Chapter 9