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32 Cards in this Set

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  • Back

Economics

a social science that studies how individuals, governments, firms and nations make choices on allocating scarce resources to satisfy their unlimited wants.

Macroeconomics


study of structure and performance of national economics and government policies that affect performance


branch of economics that deals with the performance, structure, behavior, and decision-making of an economy as a whole. It studys aggregate sectors of the economy in contrast to microecon that looks at individual people and firms decisions.

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

Aggregation

The process of summing individual economic variables to obtain economy-wide totals

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.

Another significant factor is the increase in the amount of output that can be produced with a given amount of labor.



amt of output produced per unit of labor input = avg labor producitivity

What causes a nation's economy to fluctuate in the short run?

business cycles cause short term fluctuations in the economy.

what causes unemployment?

Recessions are usually accompanied by increased unemployment


what causes prices to rise (inflation)?

when prices of most goods and services are rising over time

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.

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.

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.



Another big factor is the increase in the amount of output that can be produced with a given amount of labor.
average labor productivity = the amount of output produced per unit of labor input.


EX: per worker or per hour of work

What is a business cycle?

The repeated sequence of economic expansion giving way to temporary decline followed by recovery

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

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

Comovement

The tendency of many economic variables to move together in a predictable way over the business cycle




expansions and contractions occur at about the same time in many economic activities



business cycles don't occur in just a few sectors or in just a few economic variables

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.

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

pre ww1 record

65-month decline btwn Oct 1873 and March 1879, Depression of 1870s



338 months of contraction vs 382 months of expansion

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%

Post WW2

1945 to 2009, 642 months of expansion and 122 months of contraction

long boom

1982 to 2001

Have business cycles become less severe?

Macroeconomists believe that over the long sweep of history, business cycles generally have become less severe

Reasons for reduced volatility

Better monetary policy



Reduced shocks in productivity



Reduced shocks from food and commodity prices

Characteristics of Economic Variables?

Direction and timing

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

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

GDP

market value of final goods and services newly produced within a nations borders during a fixed period of time.

trade balance

net exports



(NX=imports-exports)


trade surplus

when exports exceed imports

trade deficit

when imports exceed exports

fiscal policy

concerns government spending and taxation

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.