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39 Cards in this Set

  • Front
  • Back
economy
structure of economic activity in a community, a region, a country, a group of countries or the worl.
gross product
measures market valur of final goodds and services produced in a certian geographical region during a given period
Gross Domestic Product
region in USA. adds up production of economy's incredible variety of goods and services.
flow variable
measure of something over an interval of time. Ex: Income per week.
stock variable
measure of something at a certain point in time. Ex: amount of money you have with you right now.
mercantilism
incorrect theory that a nation's economic objective shld be to accumulate precious metals in the public treasury; this theory prompted trade barriers to cut imports, but other coutries retaliated, reducing trade and the gains from specialization.
2 phases of the economy
Expansion and Contraction
expansion
economy grows as reflected by rising output, employement, income, and other aggregate measures.
contraction
economy declines as reflected by falling output, employment, income and other aggregate measures.
depression
a severe and prolonged reduction in economic activity as occured in the 1930s.
recession
period of decline in economic activity lasting more than a few months, as reflected by falling out, employment, income and other aggregate measures.
real GDP
the value of final goods and services after stripping away changes due to inflation. economy's aggregate output measured in dollars of constant purchasing power.
inflation
an increase in the economy's average price level.
coincident economic indicators
measure that reflect expansions, contractions, peaks and troughs as they occur. Include total employment, personal income, and industrial production.
lagging economic indicators
variables that follow, or trail, changes in overall economic activity; Ex: interest rate and the average duration of unemployment.
aggregate output
a composite measure of all final goods and services produced in an economy. Best way to measure is by using Real GDP
aggregate demand
relationship btwn avg. price of aggregate output in economy and the quantity of aggregate output demanded.
price level
avg. price of aggregate output. used to compare prices overtime and compare real aggregate output overtime
2 things price index shows.
1. how economy's price level changes overtime.
2. used to figure out real GDP each year.
aggregate demand curve
a curve representing the inverse relationship btwn the economy's price level and real GDP demanded per period.
aggregate supply curve
a curve representing the positive relationship btwn the economy's price level and real GDP supplied per period.
Whats assumed constant along an aggregate supply curve?
1. resource prices.
2. state of technology.
3. rules of the game that provide production incentives.
What did John Keynes propose?
he proposed the gov. jolt the econ. put of depression by increasing aggregate demand by pouring money into the economy and create a federal deficit.
federal budget deficit
a flow variable measuring the amount by which federal gov. outlays exceed fed. gov. rev. in a certain period.
demand-side economics
macro policy that focuses on shifting the aggregate demand curve as a way of promoting full employment and price stability.
stagflation
a contraction of a nation's output accompanied by inflation in the price level. Supply side of macro.
Supply-Side economics
macro policy tht focused on a right shift of the aggregate supply curve through tax cuts or others changes to increase production incentives.
federal debt
a stock variable that measures the net accumulation of annual federal deficits.
leading economic indicators
variables that predict, or lead to, a recession or recovery. It can't predict when a turning pt. will or whether one will occur.
Real GDP per capita
real GDP divided by the population; the best measure of an economy's standard of living.
Differentiate between stock and flow variables. Give an example of each.
Stock variables are measures at a given point in time such as height, weight, checking account balance. Flow variables measure something over an interval such as annual income, monthly budget.
Describe the various components of fluctuations in economy activity over time. Because economic activity fluctuates, how is long-term growth possible?
The economy moves through periods of expansion and periods of contraction. Contractions include recessions in which total output and employment decline over a six-month period and more serious depressions in which sharp reductions occur in output and employment that last more than a year. The end of a contraction is marked by the trough, or lowest point. After the trough, the economy enters an expansion period in which total output increases until the economy reaches its peak.The economy grows over time because expansions last longer than contractions
Define leading economic indicators and give some examples.
Leading economic indicators are economic statistics that change prior to a change in the overall economy. That is, they turn downward before a recession and upward before an expansion, thus pointing to the future direction of the overall economy. Examples include orders for machinery and equipment, the stock market index, consumer confidence, and household spending on durable goods.
Why does a decrease of the aggregate demand curve result in less employment, given an aggregate supply curve?
When aggregate demand decreases along a fixed aggregate supply curve, both the price level and the output level drop. As aggregate output declines, fewer workers are needed and unemployment rises.
Is it possible for the price level to fall while production and employment both rise? If it is possible, how could this happen? If it is not possible, explain why not.
Yes, this could occur if aggregate supply and aggregate demand increased. Both curves would shift to the right, but the aggregate supply curve would shift more than the aggregate demand curve. This would force down the price level while increasing production. Increased production and a lower price level would also occur if aggregate supply increased along a fixed demand curve.
Describe the relationship illustrated by the aggregate demand curve. Why does this relationship exist?
Aggregate demand describes an inverse relationship between the average price level of all goods and services and the total quantities of goods and services demanded throughout the entire economy. The quantity of aggregate output demanded depends in part on household wealth. An increase in the price level decreases the purchasing power of bank accounts and currency. Thus, households are poorer when the price level increases, so they decrease the quantity of aggregate output demanded.
What is the relationship between demand-side economics and the federal budget deficit?
Demand-side economics focuses on the ability of the government to affect aggregate demand and thus promote full employment. During periods of unemployment, demand-side economics recommends that the federal government expand aggregate demand by increasing government spending and/or cutting taxes. This is likely to result in budget deficits, when government expenditures exceed government tax revenues.
What were some of the causes of the stagflations of 1973 and 1979? In what ways were these episodes of stagflation different from the Great Depression of the 1930s?
In 1973, crop failures around the world caused grain prices to rise substantially. At the same time, OPEC raised oil prices sharply. These two events combined to reduce aggregate supply, causing the price level to rise while output and employment fell. In 1979, oil prices again rose sharply, and aggregate supply dropped.
In contrast, the Great Depression occurred with a significant drop in aggregate demand. Therefore, while output and employment fell, prices dropped—unlike the price increases that come with stagflation. In addition, the Great Depression lasted much longer and caused a much greater drop in output and employment.
How did the recession of 2007-2009 affect the economy?
Employment fell by 8.4 million jobs. The federal budget deficit tripled from $408 billion to $1.4 trillion. GDP fell by about two percent.