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35 Cards in this Set
- Front
- Back
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Microeconomic assumptions
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1. households maximize utility
2. firms maximize profits 3. prices are flexible (vs sticky) wages didn't fall in Great Deppression |
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Classical models vs. Keynes
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1. free market, no gov't help, prices are flexible
2. govnt intervention helpful when necessary, prices/wages are sticky |
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Keynes
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1936; "The General Theory of Employment, Interest and Money" aggregate demand for goods and services determines the level of employment instead of prices and wages, After WWII his views began to influence
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stagflation
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overall price level rises rapidly during periods of recession or high and persistentt unemployment (1970s)
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Franklin Delanor Roosevelt
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FDIC- deposit insurance for banks allowed fed reserve more regulation on banks
SEC-provide $ for elderley widows WWII finally got us out of deppression |
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3 Tenants of Macro
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inflation, unemployment rate, aggregate output (GDP)
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Inflation
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overall increase in price level, measured by CPI monthly by BLS, 3-4% in 06 but 2% is best
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unemployment rate
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put out monthly by BLS, 4.5% buy 4-6% is healthy
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GDP
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$13 trillion annually, measured quarterly by BEA (dep of commerce)
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business cycle: falling output and employment
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contractions slumps recessions (2 quarters; book vs. NBER) UE rises and low risk of inflation
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business cycle: rising output
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booms, expansions, UE declines and higher risk of inflation
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GDP facts
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1. final goods and services
2. within a given time 3. within a country measured quarterly by BEA |
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Not counted in GDP
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1. used goods
2. intermediate goods 3. underground economy 4. paper transactions where no new goods/services are produced 5. goods/services not produced in US |
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GNP
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regardless of where output is produced
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GDP deflator
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looks at price increase by taking out the change in production (looks at inflation) =nominal GDP/real GDP X 100 (no %!)
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expenditure approach: method of computing GDP
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add up total amount spent on all final goods during a period
Y=C+I+G+NX |
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GDP vs. GPI
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we should look at both (GPI measures well-being)
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3 types of consumption
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1. durable
2. non-durable 3. services |
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types of investment
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1. non-residential
2. residential 3. inventories |
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Net exports
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NX=exports-imports
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income approach
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in terms of who receives it as income rather than as who purchases it
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how is UE measured?
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BLS surveys 60,000 HHS monthly
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UE rate
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#UE/#LF
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labor force participation rate LFR computed by BLS
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#LF/#Pop trended upward over time, doesn't move with recessions or booms
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teenagers UE
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16.2%
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UE and race
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white 4.1
black 8.8 (teens 28.8) hispanics 5.3 |
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types of UE
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1. frictional
2. stuctural 3. cyclical |
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natural rate of UE
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frictional + structural
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Does CPI accurately measure inflation?
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COLAs, SS adjusted by CPI yearly, changes in CPI somewhat overstate changes in cost of living
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questions of CPI bias
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1. substitution
2. change in quality of goods 3. outlet ricing |
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producer price indexes
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measures changes in prices of inputs
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determinants of consumption
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1. INCOME Y
2. wealth 3. interest rates (inversely) 4. expectations about the future |
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planned vs. actual investment
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firms don't have complete control over inventory
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I planned investment
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nonres. + res + planned inventory changes
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I(A) actual investment
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nonres + res + planned inventory changes + unplanned inventory changes (can be + or -)
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