Reading...
Play button
Play button
Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
43 Cards in this Set
- Front
- Back
|
4 central problems in Macro
|
1) Growth 2) Business Cycles 3) Inflation and 4) Unemployment
|
|
|
Why are some countries rich and others poor?
|
Richer countries have improved their labor, capital, and technology.
|
|
|
Why did the world stagnate for thousands of years and then suddenly start growing?
|
The Industrial Revolution promoted machinery and increased growth dramatically.
|
|
|
business cycles
|
The upward or downward movement of economic activity (or real GDP) that occurs around a growth trend.
|
|
|
4 phases of business cycle:
|
1) peak 2) downturn 3) trough 4) upturn
|
|
|
recession
|
downturn that lasts more than 2 consecutive quarters (6 months)
|
|
|
depression
|
a large recession
|
|
|
long run growth framework
|
focuses on supply or determinants of production (capital, labor, and technology)
|
|
|
short run business cycle framework
|
focuses on demand (spending and business spending)
|
|
|
discouraged worker
|
someone who is not actively looking for work
|
|
|
labor force
|
# of unemployed + employed
|
|
|
unemployment rate
|
# of unemployed/labor force x 100
|
|
|
inflation rate
|
the % increase in the average level of prices
|
|
|
Gross Domestic Product (GDP)
|
The market value of all final goods and services produced in the economy in a year.
|
|
|
Q: A pair of shoes made in 2007 did not sell. How/when do we count it?
|
A: In 2007 as inventory
|
|
|
value-added system
|
compute what is added intervals of value at each stage of production
|
|
|
underground economy
|
illegal activity (kids, drugs, etc) ; not counted in GDP
|
|
|
stock variable
|
measured at a point in time like wealth
|
|
|
flow variable
|
measured over a period of time like income
|
|
|
real GDP
|
adjusted for inflation (use base year price)
|
|
|
GDP =
|
C + I + G +NX
consumption + investment + government spending + net exports |
|
|
Consumption (c)
|
goods and services bought by households
nondurables: food, clothing durables: cars, appliances, etc. services: legal education |
|
|
Investment (I)
|
goods used to produce other goods (businesses and firms "invest"
|
|
|
Government spending (G)
|
all the things government buys
|
|
|
Net Exports (NX)
|
exports - imports
|
|
|
Gross National Product (GNP)
|
GDP + factor payments from abroad - factor payments to abroad
|
|
|
human development index (HDi)
|
components: life expectancy, literacy rate, enrollment rate, and GDP per capita
|
|
|
REAL GDP =
|
nominal GDP / GDP deflator x 100
gdp deflator = price index (PPI and CPI) |
|
|
Percent change formula
|
new-old/old x 100
|
|
|
The average Americans makes how much per year?
|
$46,000
|
|
|
Investment
|
a) business fixed investment
b) residential investment c) inventory investment |
|
|
computing gdp as INCOME
|
compensation of employees + rental income + corporation profits + proprietor's income (individual/family businesses) + net interest + other small stuff
|
|
|
Problems with CPI
|
1) Consumers may substitute between goods, but CPI is fixed. If prices of some goods rise consumers may not be as worse off as CPI may indicate
2) New goods are constantly introduced, but CPI doesn't acount for them. Consumers may be better off as a result of having more goods to choose from. 3) Quality of goods improes, so higher prices not necessarily mean inflation 4) Senate commission found CPI biased upward by about 1% |
|
|
labor force participation rate
|
labor force/ adult population x 100
|
|
|
factors of production
|
capital (K) and labor (L) for product output: Y
|
|
|
production function
(may exhibit constant returns to scale, for example..if you double inputs, it will double output) |
Y=F(K,L)
|
|
|
How are the proceeds of production distributed?
|
Labor gets paid wages (w) and owners of capital get paid rent (r)
|
|
|
Profit function
|
PX - WL - RK
PX = total revenue the rest = total cost |
|
|
the marginal product of labor (MPL)
|
additional output produced by one more unit of labor
|
|
|
Consumption depends on:
|
disposable income (net of tax and transfers)
C= C(Y-T) or C= a +b(Y-T) a= autonomous consumption of what would be spent with no income b= marginal propensity to consume |
|
|
Investment depends on
|
the real interest rate (r)
real interest rate = nominal interest rate - inflation |
|
|
government purchases
|
weapons, servies, roads, etc.
determined by the government, so in our model, they are exogenous |
|
|
what adjusts to reach demand = supply
|
r or real interest rate
|
