Macro Economics

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The sum total of all the goods and services produced in a country.

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Aggregate level of output

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The study of the decisions made by individual decision-making units and economic conditions prevailing in one particular market or industry.

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microeconomics

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Human wants are unlimited in relation to the available resources in the economy; with the available resources we cannot satisfy the collective wants of all the members of the society.

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Scarcity

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Those things we use to produce goods and services; also called production inputs or factors of production.

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Resources

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All natural resources such as agricultural land, mineral resources, timberlands, and underwater resources.

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Land

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Human effort; measured by the “person-hour.”

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Labor

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All produced means of production.

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Capitol

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Any institution that brings buyers and sellers of a good or service together.

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Market

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A collection of firms that produce identical or nearly identical products.

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Industry

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Average of the prices of all the goods and services produced in a country.

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Average Price level

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Study of the behavior of aggregate economic variables such as the aggregate level of output, the overall price level, and overall employment.

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Macroeconomics

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The number of people with jobs in an economy.

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Overall Employment

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The notion that what is true for one individual in a group may not be true for the sum of all the individuals comprising that group.

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Fallacy of Composition

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Statements about how things are, or how we think they are; don’t make any value judgment about whether any particular state or outcome is good or bad.

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Positive Statements

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Statements involving judgments; the person making the statement considers the present state of things or the outcome of a decision to be good or bad.

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Normative Statements

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Simplified versions of reality that economists develop to analyze and understand the complex economic relationships that exist in the real world.

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Economic Models

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Variables whose values are determined inside the model on the basis of the values of the other variables

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Endogenous Variables

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Variables whose values are determined outside the model on the basis of other factors, and are therefore known to the analyst.

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Exogenous Variables

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Latin phrase meaning “all else the same;” used to indicate that all other exogenous variables are kept unchanged during analysis.

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Ceteris paribus

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GDP Productions: What is included?

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1. Final Goods and Services
2. Intermediate goods sold but not used
3. Goods produced but not sold.
4. The finished portions of unfinished goods.

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Three aspects of GDP:

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Production, Income, and Expenditures

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market value of production in a year is measured in that year’s prices

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Nominal GDP

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market value of production in a year is measured in a base year’s prices.....(As market value is measured in a single base year’s prices, real GDP is adjusted for price differences between years (it reflects only production, not prices))

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Real GDP

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(Real GDP(New)- Real GDP(Old))/Real GDP(Old) x100

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GDP GROWTH RATE

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price index that expresses a year’s price level as a percentage of a base year’s price level.......Nominal GDP/Real GDP x100

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GDP Deflator

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A good that is sold to a firm to be used up in further production.

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Intermediate Good

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Term used to describe groups of goods that are produced but not sold as final goods.

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Increases in Inventory

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A variable whose measurement requires that a time period be specified.

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Flow Variable

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The sum of all payments made to production inputs.

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Factor Income

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An index that measures a country’s aggregate production of goods and services during a certain period of time.

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Gross Domestic Product

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The reduction in the value of a capital good that results from its use in production.

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Depreciation

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A variable that can be measured at a single point in time.

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Stock Variable

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The difference between the market value of the output sold by a firm and the amount it pays for goods used in its production.

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Value Added

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An index of aggregate output calculated by subtracting depreciation from GDP.

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Net Domestic Product

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A price index that is intended to provide a good measure of the overall prices faced by households.

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Consumer Price Index

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two types of natural unemployment

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Frictional unemployment (due to job search time)
Structural unemployment (due to changes in the types
of jobs available)