Chapter 5 Macro

Front 1

Expansions (Business cycle)

Back 1

occur when moving from a trough to a peak.

Front 2

contractions/recessions (Business cycle)

Back 2

occur when moving from a peak to a trough.

Front 3

depression (Business Cycle)

Back 3

a deeper and longer form of a recession.

Front 4

Inflation (Business Cycle)

Back 4

an increase in the overall price level.

Front 5

Hyperinflation

Back 5

a severe form of inflation where prices increase rapidly.

Front 6

Deflation

Back 6

a decrease in the overall price level.

Front 7

Stagflation

Back 7

when there are high levels of both inflation and unemployment.

Front 8

Transfer payments

Back 8

money that is transferred from one person to another by the government. (Social Security)

Front 9

Fiscal policy

Back 9

all about what the government does to control the economy.

Front 10

Monetary policy

Back 10

decisions made by the Federal Reserve to affect the economy.

Front 11

John Maynard Keynes

Back 11

considered the founder of macroeconomics.

Front 12

GDP (Gross Domestic Product)

Back 12

the total market value of all final goods and services produced within a given period (usually a year) by factors of production located within a country.

Front 13

underground economy

Back 13

transactions not reported on tax returns

Front 14

GNP (Gross National Product)

Back 14

the total market value of all final goods and services produced within a given period by factors of production owned by a country's

Front 15

Expenditure approach

Back 15

calculates the total amount spent on all final goods and services produced.

Front 16

Consumption

Back 16

70% of GDP, includes durables, nondurables, and services

Front 17

o Nonresidential investment

Back 17

purchasing of tools, machines, plants by firms

Front 18

o Residential investment

Back 18

purchasing of NEW homes and apartments

Front 19

Income approach

Back 19

This measures GDP by adding up all of the income of the factors of production in making a good, which include rent, wages, interest, and profits.

Front 20

Value-added approach

Back 20

This measures GDP by taking the difference in value between each good as it goes through different stages.

Front 21

Nominal GDP

Back 21

GDP measured in today's dollars.

Front 22

Real GDP

Back 22

GDP measured in dollars adjusted for inflation.

Front 23

labor force

Back 23

includes everyone who is unemployed and employed. It does not count the whole population!

Front 24

unemployment rate

Back 24

should always be a decimal less than 1 or a percent.

Front 25

Discouraged workers

Back 25

those who were previously unemployed and looking for jobs but, after a long spell of no luck, have given up and stopped looking.

Front 26

Frictional Unemployment

Back 26

This is a temporary employment that happens when a person leaves his job and is about to begin another one.

Front 27

Structural Unemployment

Back 27

This is unemployment caused by technology or a change in the structure of the economy, which causes certain workers' skills to no longer be useful.

Front 28

Cyclical Unemployment

Back 28

This is unemployment caused by the business cycle. Any layoffs that occur in a recession are considered cyclical unemployment.

Front 29

natural rate of employment

Back 29

= frictional + structural unemployment

Front 30

Consumer Price Index (CPI

Back 30

This is the one that uses the "market" basket to determine the overall price level. It uses fixed weights and, as a result, does not account for substitutions due to varying prices.

Front 31

Producer Price Index (PPI)

Back 31

This measures the overall price level by measuring the prices of wholesale goods rather than consumer goods.

Front 32

GDP Deflator

Back 32

This measures the overall price level by weighting GDP by quantity and starting at a base year. This one is often considered the BEST way to measure inflation (mainly because it's weighted)

Front 33

• Productivity

Back 33

This is GDP divided by the labor force. This is a good way to measure and compare growth and output.

Front 34

(Consumption Function) When the consumption function is above the 45-degree line

Back 34

consumption is greater than total income and saving is negative.

Front 35

(Consumption Function) When the consumption function intersects the 45-degree line

Back 35

consumption equals income and savings is zero.

Front 36

(Consumption Function) When the consumption function is below the 45-degree line

Back 36

consumption is less than income and savings is positive.

Front 37

consumption function equation

Back 37

C = a + b Y
C = consumption
Y = income
a=amount of money you would spend with 0 income
b = slope of the consumption function = MPC

Front 38

Marginal Propensity to Consume (MPC)

Back 38

the percentage of every dollar of your income that you spend.

Front 39

Marginal Propensity to Save (MPS)

Back 39

is the percent of every dollar of income that is saved

Front 40

Planned Investment

Back 40

investment that is planned to occur in the future.

Front 41

Actual Investment

Back 41

investment that actually occurs and may include certain unplanned investments.

Front 42

"Paradox of Thrift"

Back 42

occurs when members of a society save their money, and, as a result, income drops.

Front 43

labor force

Back 43

= employed + unemployed

Front 44

unemployment rate

Back 44

= unemployed / labor force

Front 45

government spending multiplier

Back 45

= 1 / MPS

Front 46

budget deficit

Back 46

= G -T

Front 47

Multiplier

Back 47

= 1 / MPS