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61 Cards in this Set

  • Front
  • Back
The study of the aggregate economy.
Macroeconomics
The act of combining many individual markets into one overall market.
Aggregation
Shows the quantity of the domestic product (Y) that is demanded at each given price level (P).
Aggregate demand curve (AD)
Shows the quantity of domestic product(Y) that is supplied at each given price level (P).
Aggregate supply curve (AS)
A price index that represents the average price of goods and services produced in an economy.
Price level (P)
The sum of money values of all final goods and services produced in the domestic economy and sold on organized markets in a year.
Gross Domestic Product (GDP)
Purchased by their ultimate users.
Final goods and services
Purchased for resale or for use in producing another good.
Intermediate goods
Only ____________________ is included in GDP.
Market activity
Calculated by valuing all outputs at current prices.
Nominal GDP
Calculated by valuing outputs of different years at a chosen base year's prices. Corrected for inflation.
Real GDP
Refers to a sustained increase in the general price level.
Inflation
Refers to the rate at which the prices increase.
Inflation Rate
Refers to a sustained decrease in the general price level.
Deflation
A period of time during which the total output of the economy declines.
Recession
A government policy designed to prevent or shorten recessions and to tame inflation (to stablize prices).
Stabilization Policy
To improve long-run economic growth, while keeping both unemployment and inflation low.
Goal of macroeconomics
the real GDP that the economy would produce if its resources were fully utilized (in normal times).
Potential GDP (Y)
The growth of the labor force, capital stock, and technical progress.
Supply-side factors.
Actual GDP tends to fluctuate around potential GDP.
Short-Run
Actual GDP tends to converge to potential GDP.
Long-run
Measures the size of the expansion of the economy over time
Real GDP Growth
considers the population effect on a coutry's GDP.
Real GDP per capita
Real GDP/Population =
Real GDP per capita
Real GDP per hour of work.
Labor Productivity
Real GDP/Hours of work =
Labor Productivity
(# of people employed) + (# of people unemployed but who actively seek work) =
Labor force
a person who gives up looking for work and is therefore no longer counted as unemployed and is not part of the labor force.
Discouraged worker
(# of unemployed/Labor force) x 100 =
Unemployment Rate
(Labor force/Working age population) x 100 =
Labor Force participation rate
Unemployed during a job change or of a new entrant into labor force
Frictional unemployment
Unemployed due to structural changes in an industry.
Structural unemployment
Unemployed due to the business cycle. Rises durinig recessions and falls as prosperity is restored. Due to bad economy
Cyclical unemployment
Real GDP tends to fluctuate around potential GDP over time.
Business cycle
a period of falling real GDP-- for at least two successive quarters.
Recession
a period of rising real GDP.
Expansion (boom)
The unemployment rate is never _______ since frictional and structural unemployment always exist in an economy.
zero
includes frictional and structual employment
natural rate of unemployment
Frictional + Structural =
Natural rate of unemployment
If the cyclical unemployment = 0 then
The economy is at potential GDP (full-employment GDP)
the portion of unemployment attributed to output being below potential. Due to recession and bad employment
Cyclical unemployment
production is not maximized with given resources (production is inside the PPF which is inefficient) when the labor is not fully employed.
The economic costs of (cyclical) unemployment
expresses the cost of a market basket of goods relative to its cost in some base period.
Price Index
{(Cost of Market basket in year t)/(Cost of market basket in base Year)} x 100=
CPI in year t
In the base year, CPI =
100
The process of finding the real value of some monetary magnitude by dividing by some appropriate price index.
Deflating
{(Nominal Monetary Magnitude in Year t)/(Price index in year t)} x 100=
Real Value
To compare the purchasing power of monetary magnitudes across different time periods, by converting current dollars to a common base year dollars.
Purpose of Deflating
The volume of goods and services that it will buy.
Purchasing power
{(Nominal Wage)/(CPI)} x 100=
Real Wage
The wage adjusted for inflation. It indicates the volume of goods and services that money wages will buy.
Real Wage
Another price index other than CPI. It is implicitly derived from the deflating procedure.
GDP Deflator
{(Nominal GDP)/(GDP Deflator)} x 100=
Real GDP
It is a broad measure of economy-wide inflation.
GDP Deflator
The inflation rate excluding food and energy prices
The core inflation rate
Inflation systematically reduces the real value of worker's wages. In reality, a rise in inflation is generally accomanied by an increase in nominal wage growth.
Inflation Myth
Causes a redistribution between borrowers and lenders.
Unexpected Inflation
(Real Rate of interest) + (Expected rate of inflation)=
Nominal Rate of interest
the percentage by which the money a borrower pays back exceeds the amount that she borrowed.
The nominal rate of interest
the percentage increase in purchasing power that the borrower pays to the lender for the privilege of borrowing.
Real rate of interest
The difference between the price at which an asset is sold and the price at which it was bought
Capital gain