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35 Cards in this Set

  • Front
  • Back
Microeconomic assumptions
1. households maximize utility
2. firms maximize profits
3. prices are flexible (vs sticky) wages didn't fall in Great Deppression
Classical models vs. Keynes
1. free market, no gov't help, prices are flexible
2. govnt intervention helpful when necessary, prices/wages are sticky
1936; "The General Theory of Employment, Interest and Money" aggregate demand for goods and services determines the level of employment instead of prices and wages, After WWII his views began to influence
overall price level rises rapidly during periods of recession or high and persistentt unemployment (1970s)
Franklin Delanor Roosevelt
FDIC- deposit insurance for banks allowed fed reserve more regulation on banks
SEC-provide $ for elderley widows
WWII finally got us out of deppression
3 Tenants of Macro
inflation, unemployment rate, aggregate output (GDP)
overall increase in price level, measured by CPI monthly by BLS, 3-4% in 06 but 2% is best
unemployment rate
put out monthly by BLS, 4.5% buy 4-6% is healthy
$13 trillion annually, measured quarterly by BEA (dep of commerce)
business cycle: falling output and employment
contractions slumps recessions (2 quarters; book vs. NBER) UE rises and low risk of inflation
business cycle: rising output
booms, expansions, UE declines and higher risk of inflation
GDP facts
1. final goods and services
2. within a given time
3. within a country
measured quarterly by BEA
Not counted in GDP
1. used goods
2. intermediate goods
3. underground economy
4. paper transactions where no new goods/services are produced
5. goods/services not produced in US
regardless of where output is produced
GDP deflator
looks at price increase by taking out the change in production (looks at inflation) =nominal GDP/real GDP X 100 (no %!)
expenditure approach: method of computing GDP
add up total amount spent on all final goods during a period
we should look at both (GPI measures well-being)
3 types of consumption
1. durable
2. non-durable
3. services
types of investment
1. non-residential
2. residential
3. inventories
Net exports
income approach
in terms of who receives it as income rather than as who purchases it
how is UE measured?
BLS surveys 60,000 HHS monthly
UE rate
labor force participation rate LFR computed by BLS
#LF/#Pop trended upward over time, doesn't move with recessions or booms
teenagers UE
UE and race
white 4.1
black 8.8 (teens 28.8)
hispanics 5.3
types of UE
1. frictional
2. stuctural
3. cyclical
natural rate of UE
frictional + structural
Does CPI accurately measure inflation?
COLAs, SS adjusted by CPI yearly, changes in CPI somewhat overstate changes in cost of living
questions of CPI bias
1. substitution
2. change in quality of goods
3. outlet ricing
producer price indexes
measures changes in prices of inputs
determinants of consumption
2. wealth
3. interest rates (inversely)
4. expectations about the future
planned vs. actual investment
firms don't have complete control over inventory
I planned investment
nonres. + res + planned inventory changes
I(A) actual investment
nonres + res + planned inventory changes + unplanned inventory changes (can be + or -)