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35 Cards in this Set
- Front
- Back
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Macroeconomics studies what? |
studies the entire economy or its major aspects such as consumption and investment
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Macroeconomics is concerned with? |
concerned with short-run fluctuations that create conditions giving rise to an up-and-down business cycle
*(EX: recession) |
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Macroeconomics also studies long-run trends for what? |
- economic growth that bring rising living standards |
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Which three performance measurements are required for macro studies? |
1. Real Gross Domestic Product (GDP) 2. Unemployment 3. Inflation |
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What does the Real GDP provide? |
provides an overall indicator of output or production in the economy
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What does Unemployment measure? |
measures the degree to which labor resources are being fully used in the economy.
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What does Inflation track? |
tracks the overall increase in the level of prices in the economy.
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How can a country achieve economic growth? |
requires saving and investment and a banking and financial system to allocate resources to economic investment in newly created capital goods |
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The expectations that people hold influence what? |
influence economica behavior |
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What is an economic shock? |
when expectations of the economy are not met, *predictions of economic growth are wrong. |
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Demand Shocks are important because they can result in? |
result in the short-run fluctuations that can significantly change output and employment
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Concerning Demand Shock, what distinction can be identified between the two situations? |
1. Flexible Prices 2. Inflexible Prices (sticky prices) |
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If prices are perfectly flexible in an economy, then?
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a change or shock from demand results in a change in the overall level of prices
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If prices are Inflexible or "sticky" (as they often are in the short run), then? |
a change in demand results in a change in
output and employment in the economy |
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Difference between real GDP and nominal GDP is?
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real values are adjusted for inflation,
while nominal values are not. |
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Because of inflation which GDP is usually higher than the other? |
NOMINAL GDP will often appear higher than real GDP.
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Why is unemployment is a loss to the
economy? |
not fully employing its labor resources, which reduces potential production and leads to
other social problems. |
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The problem that inflation presents to the
economy is? |
Inflation erodes the purchasing power of
incomes and reduces the value of savings |
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Economic growth depends on devoting what? |
devoting some current output to increase
future output |
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What is investment? |
when resources are devoted to the production of future output
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Economic investment refers to the?
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purchase of newly created capital goods such as new tools, new machinery, or new buildings that are bought with the purpose of expanding a business
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Financial investment refers to the?
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purchase of an asset such as a stock, bond, or real estate that is made for the purpose of
financial gain. * Financial investment simply transfers ownership of an asset from one party to another. |
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When does Demand Shock take place? |
when unexpected changes occur for the demand of products |
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Supply Shocks occur when? |
unexpected changes occur for the supply of products |
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Most short-run fluctuations in the economy come from? |
Demand Shocks |
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If the price for the product is flexible, a change in the demand for the product will result in?
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a change in price to achieve equilibrium at the set quantity of output (vertical supply curve)
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If the price for a product is flexible, a change in demand will only change what? |
The price of the product. Output of products will remain the same. |
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Why do demand shocks present a major
problem for the macro economy? |
because the prices of most products are
inflexible or slow to change in the short run ("sticky"). |
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When a price is inflexible, then the response to a demand shock is a change in?
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Output (supply) and Employment |
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Firms attempt to address the problem of
fluctuating demand by? |
Maintaining an inventory *(only helps out for a short period of time) |
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If inventories become large and remain so for a long period of time, they start to? |
cost the company too much money |
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To reduce inventory buildup companies will? |
cut production and employment (in turn will reduce GDP) |
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Short-run macroeconomic models assume that prices are?
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inflexible or sticky (demand shock affects output and employment) |
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Long-run macroeconomic models assume that prices are?
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Flexible prices (demand shocks affect prices) |
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What are the reasons for "sticky" prices? |
1. Consumers like stable prices 2. Businesses don't want to have a price war with competitors |
