macroeconomics chapters 6 – 10 – Flashcards
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alternate periods of economic expansion and economic recession, fluctuations in economic activity, such as employment and production
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Business Cycle
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an economic slump; a depression; a decline
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Recession
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a measure of GDP in which the quantities produced are valued at the prices in a base year rather than at current prices
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Real GDP or Real Gross Domestic Product
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the value of final goods and services evaluated at current year prices
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Nominal GDP
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measures the number of people who are able to work, but do not have a job during a period of time
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Unemployment Rate
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a rise in the overall level of prices
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Inflation
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the phenomenon in which nations for the first time have experienced sustained increases in real GDP per capita.
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Modern Economic Growth
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income not spent on consumption or when consumption is less than current output
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Savings
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when resources are devoted to benefits in the future; the use of assets to earn income or profit
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Investment
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the purchase of assets like stocks, bonds, and real estate in hope of reaping a financial gain
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Financial Investment
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has to do with the creation and expansion of business enterprises. only includes money spent purchasing newly created capital goods such as machines, tools, ect
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Economic Investment
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unexpected changes in the demand for goods and services ex. positive demand shocks refer to a situation in which demand turns out to be higher than expected. ex. negative demand shocks refer to a situation in which demand turns out to be lower than expected.
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Demand Shocks
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unexpected changes in the supply of goods and services
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Supply Shocks
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way people think about the future
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Expectations
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when firms are expecting one thing to happen but then something else happens. (These sorts of decisions are necessitated by the shock and surprise of having to deal with an unexpected situation)
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Shocks
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product prices that freely move upward or downward when product demand or supply changes, they react within seconds to change in supply and demand, rapidly adjusting
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Flexible Prices
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prices that remain the same
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Fixed Prices
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prices that don't change easily
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Inflexible Prices "Sticky Prices"
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the merchandise that a shop has on hand
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Inventory
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total dollar value of all final goods and services produced in a country during a single year
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GDP
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studies long run economic growth and short run economic fluctuations Their focus is on 3 key statistics real gdp,unemployment and inflation
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Macroeconomics
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Savings, Investment (in a business)
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Keys to Economic Growth
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Measures the economy's performance by measuring the flows of income and expenditures.
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National Income Accounting
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Goods purchased for resale or for use in producing another good or service.
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Intermediate Goods
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Goods to be sold to the consumer for final use, these goods are not for resale.
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Final Goods
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Wrongly including the value of intermediate goods in the GDP counting the same good or service more than once.
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Multiple Counting
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the gross value of the product - the costs of raw materials and energy
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Value Added
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Government payments that are sent to certain households ex. Social Security, Welfare
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Public Transfer Payments
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Gifts, inheritances, charitable contributions are not included in GDP
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Private Transfer Payments
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Buying and selling of stocks
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Stock Market Transactions
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The total or sum of all monies spent to purchase aggregate output. One of two ways to calculate GDP.
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Expenditures Approach
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The total or sum of all income earned in the production of GDP. One of two ways to calculate GDP.
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Income Approach
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All goods and services bought by households
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Personal Consumption Expenditures
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Gross investment - depreciation
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Net Domestic Investment
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spending by federal, state, and local governments on goods and services
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Government Purchases
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increase in total output or real GDP
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Economic Growth
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Ratio of real GDP divided by population.
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Real GDP Per Capita
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70 / annual percentage rate of growth
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Arithmetic Of Growth
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Due to Improved products, added leisure, other impacts
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Growth in the U.S
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Strong Property Rights, Patents and Copyrights, Efficient Financial Institutions, Literacy and Widespread Education Competitive Market System and Free Trade
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Institutional Structures that promote growth
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changes in the physical and technical agents of production; (in growth) this enables an economy to expand it's potential GDP
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Supply Factors
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The increase in the level of aggregate demand that brings about the economic growth made possible by an increase in the production potential of the economy
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Demand Factor
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the percentage of the working age population in the labor force
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Labor Force Participation Rate
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the supply-side elements such as productivity and labor inputs that contribute to changes in real GDP over some specific time period
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Growth Accounting
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a system of public works; the resources and facilities required for an activity; permanent military installations
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Infrastructure
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The knowledge, skills, and abilities that make a worker productive
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Human Capital
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a situation in which long-run average cost increases as a firm's output increases ex. markets increase it's size over time
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Economies of Scale
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means that humans create to store and transmit information
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Information Technology
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various aspects of new information technology
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Start Up Firms
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an increase in a firm's output by a larger percentage than the percentage increase in its inputs
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Increasing returns
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70 / percentage growth rate = doubling time in years
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Rule of 70
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Economic growth maintaining increase in RGDP per capita
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Modern Economic Growth
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countries that develop and use advanced technologies, which then become available to follower countries
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Leader Countries
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countries that adopt advanced technologies that previously were developed and used by leader countries
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Follower Countries
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the capacity of an economy to combine resources effectively to achieve growth of real output that the supply factors make possible
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Efficiency Factor
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is the amount of goods and services that a laborer produces in a given amount of time
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Labor Productivity
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when people become more productive in producing good by repeatedly producing the goods
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Learning by Doing
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as more consumers use a product, the value of the product rises;
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Network Effects
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doubling the input to increase the output
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Increasing Returns
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small business with advanced new technology
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Start-Up Firms
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the highest point of a mountain temporarily
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Peak
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a period of decline in total output
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Recession
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the bottom of a recession or depression
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Trough
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a period which real GDP, income and employment rises
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Expansion
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the total number of workers, including both the employed and the unemployed
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Labor Force
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= unemployed / labor force *100
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Unemployment Rate
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those who drop out of the labor force in frustration because they can't find work
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Discouraged Workers
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unemployment that occurs when people search and wait a job
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Frictional Unemployment
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unemployment that occurs when workers' skills do not match the jobs that are available
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Structural Unemployment
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unemployment caused by a decline in total spending or recession
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Cyclical Unemployment
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the normal rate of unemployment with full employment
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Natural Rate of Unemployment
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The real output (GDP) occurs when an economy is fully employed
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Potential Output
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= actual GDP - potential GDP
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GDP Gap
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For every 1% of unemployment rate exceeds the natural rate
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Okun's Law
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Jobs, age, race and ethnicity, gender, education and duration
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Unemployment Factors
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The rate of Inflation CPI = (Price of Market Basket for a Particular year / price estimate of the market basket) * 100
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Consumer Price Index (CPI)
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Inflation caused by an increase in demand more than capacity
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demand pull inflation
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When prices rise due to an increase in the cost of production.
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cost push inflation
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= total input cost / total of output
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Per Unit Production Cost
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The # of dollars received as rent, wages interest and profits
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Nominal Income
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Income measured in terms of the goods and services it can buy Real Income = Nominal Income / Price Index(in hundredths)
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Real Income
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inflation that comes as a surprise to individuals in the economy
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Unanticipated inflation
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the rate of inflation that most individuals believe will occur
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Anticipated Inflation
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Automatic adjustments of nominal income to the rate of inflation.
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Cost of Living Adjustments (COLA)
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the percentage increase in the purchasing power borrowers pay to the lender.
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Real Interest Rate
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the stated interest rate on a loan Nominal Interest Rate = real interest rate + inflation premium(is the expected rate of inflation)
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Nominal Interest Rate
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a decline in the price level
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Deflation
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When inflation is out of control
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Hyperinflation
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a reference line that consumption would equal disposable income; C=DI
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45 degree line
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consumption function that reflects direct consumption-disposable income relationship C = DI - S
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Consumption Schedule
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"Savings function" savings S = DI- C
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Savings Schedule
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This is the income when consumption = disposable income C = D.I.
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Break Even Income
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APC = Consumption / Income
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Average Propensity to Consume
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APS = Saving / Income
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Average Propensity to Save
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MPC = Change in desired Consumption / Change in Income, MPC = C / DI
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Marginal Propensity to Consume
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MPS = Marginal Propensity to Save - the change in one's savings caused by the change in one's income. MPS = change in savings (S) / change in income (I) MPS = C / DI
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Marginal Propensity to Save
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MPC is the slope of the consumption schedule MPS is the numerical value of the slope of the saving schedule Both Added together = 1
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MPC + MPS = 1
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shifts the consumption schedule upward and the saving schedule downward
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Wealth Effect
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the annual rate of return that a firm expects to obtain through a capital investment. r = profit / total cost
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Expected Rate of Return
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The amount of investment forthcoming at each real interest rate It shifts based on the relationship between the interest rate and the amount of investment demanded
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Investment Downward Curve
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The assumption that a economy has room to expand = ratio of the change in Real GDP (RGDP) divided by the original change in spending that causes the change in GDP Multiplier = RGDP / C or 1 / MPS or 1 / 1 - MPC
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Multiplier
