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32 Cards in this Set
- Front
- Back
Economics |
a social science that studies how individuals, governments, firms and nations make choices on allocating scarce resources to satisfy their unlimited wants. |
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Macroeconomics |
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Macroeconomics vs microeconomics |
macro= looks at aggregate sectors of economy, the decision an economy makes as a whole
micro= looks at the decisions of individuals and individual firms |
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Aggregation |
The process of summing individual economic variables to obtain economy-wide totals |
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What determines a nation's long run economic growth? |
In the US economy, long term growth has been caused by a rising population which increases the number of available workers.
amt of output produced per unit of labor input = avg labor producitivity |
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What causes a nation's economy to fluctuate in the short run? |
business cycles cause short term fluctuations in the economy. |
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what causes unemployment? |
Recessions are usually accompanied by increased unemployment
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what causes prices to rise (inflation)? |
when prices of most goods and services are rising over time |
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How does being part of a global economic system affect a nation's economic performance? |
Countries with open economies can trade with other open economies. You can import and export goods and services internationally to bolster your countries economic performance. |
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Can government policies be used to improve a nation's economic performance? |
Fiscal and monetary policies made by local, state, and national government can be used to improve a nation’s economic performance. |
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Long-run growth discussion - Production relationship |
Long term growth in the US economy is a result of a rising population, which has meant a steady increase in the number of available workers.
EX: per worker or per hour of work |
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What is a business cycle? |
The repeated sequence of economic expansion giving way to temporary decline followed by recovery |
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Aggregate economic activity |
business cycles are defines broadly as fluctuations of "aggregate economic activity" rather than as fluctuations in a single, specific economic variable such as real GDP |
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Expansions and contractions |
contraction/recession = aggregate economic activity is falling. Severe recession is depression.
trough(T) = low point of the contraction
expansion/boom = aggregate economic activity grows |
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Comovement |
The tendency of many economic variables to move together in a predictable way over the business cycle
business cycles don't occur in just a few sectors or in just a few economic variables |
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Recurrent but not periodic |
The business cycle isn't periodic, in that it does not occur at regular, predictable intervals and doesn't last for a fixed or predetermined length. |
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Persistence |
The tendency for declines in economic activity to be followed by further declines, and for growth in economic activity to be followed by more growth |
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pre ww1 record |
65-month decline btwn Oct 1873 and March 1879, Depression of 1870s
338 months of contraction vs 382 months of expansion |
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Great Depression and WW2 |
Real GDP fell 30%, unemployment went from 3% to 25%
WW2 got us out of depression. Real GDP almost doubled btwn 1939 and 1944. Unemployment dropped under 2% |
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Post WW2 |
1945 to 2009, 642 months of expansion and 122 months of contraction |
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long boom |
1982 to 2001 |
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Have business cycles become less severe? |
Macroeconomists believe that over the long sweep of history, business cycles generally have become less severe |
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Reasons for reduced volatility |
Better monetary policy
Reduced shocks in productivity
Reduced shocks from food and commodity prices |
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Characteristics of Economic Variables? |
Direction and timing |
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Direction |
Procyclical - moves in same direction as aggregate economic activity
countercyclical - moves in opposite direction to aggregate activity
acyclical - no clear pattern over the business cycle |
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Timing |
Leading variable - tends to move in advance of aggregate economic activity.
coincident variable - peaks & troughs occur around same time as corresponding business cycle peaks & troughs
lagging variable - peaks & troughs tend to occur later than the corresponding peaks & troughs in business cycle |
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GDP |
market value of final goods and services newly produced within a nations borders during a fixed period of time. |
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trade balance |
net exports
(NX=imports-exports)
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trade surplus |
when exports exceed imports |
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trade deficit |
when imports exceed exports |
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fiscal policy |
concerns government spending and taxation |
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monetary policy |
determines rate of growth of the nations money supply and is controlled by a central bank. In US this bank is called the Federal Reserve System. |