Macro Econ Chapter 5

Front 1

economy

Back 1

structure of economic activity in a community, a region, a country, a group of countries or the worl.

Front 2

gross product

Back 2

measures market valur of final goodds and services produced in a certian geographical region during a given period

Front 3

Gross Domestic Product

Back 3

region in USA. adds up production of economy's incredible variety of goods and services.

Front 4

flow variable

Back 4

measure of something over an interval of time. Ex: Income per week.

Front 5

stock variable

Back 5

measure of something at a certain point in time. Ex: amount of money you have with you right now.

Front 6

mercantilism

Back 6

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.

Front 7

2 phases of the economy

Back 7

Expansion and Contraction

Front 8

expansion

Back 8

economy grows as reflected by rising output, employement, income, and other aggregate measures.

Front 9

contraction

Back 9

economy declines as reflected by falling output, employment, income and other aggregate measures.

Front 10

depression

Back 10

a severe and prolonged reduction in economic activity as occured in the 1930s.

Front 11

recession

Back 11

period of decline in economic activity lasting more than a few months, as reflected by falling out, employment, income and other aggregate measures.

Front 12

real GDP

Back 12

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.

Front 13

inflation

Back 13

an increase in the economy's average price level.

Front 14

coincident economic indicators

Back 14

measure that reflect expansions, contractions, peaks and troughs as they occur. Include total employment, personal income, and industrial production.

Front 15

lagging economic indicators

Back 15

variables that follow, or trail, changes in overall economic activity; Ex: interest rate and the average duration of unemployment.

Front 16

aggregate output

Back 16

a composite measure of all final goods and services produced in an economy. Best way to measure is by using Real GDP

Front 17

aggregate demand

Back 17

relationship btwn avg. price of aggregate output in economy and the quantity of aggregate output demanded.

Front 18

price level

Back 18

avg. price of aggregate output. used to compare prices overtime and compare real aggregate output overtime

Front 19

2 things price index shows.

Back 19

1. how economy's price level changes overtime.
2. used to figure out real GDP each year.

Front 20

aggregate demand curve

Back 20

a curve representing the inverse relationship btwn the economy's price level and real GDP demanded per period.

Front 21

aggregate supply curve

Back 21

a curve representing the positive relationship btwn the economy's price level and real GDP supplied per period.

Front 22

Whats assumed constant along an aggregate supply curve?

Back 22

1. resource prices.
2. state of technology.
3. rules of the game that provide production incentives.

Front 23

What did John Keynes propose?

Back 23

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.

Front 24

federal budget deficit

Back 24

a flow variable measuring the amount by which federal gov. outlays exceed fed. gov. rev. in a certain period.

Front 25

demand-side economics

Back 25

macro policy that focuses on shifting the aggregate demand curve as a way of promoting full employment and price stability.

Front 26

stagflation

Back 26

a contraction of a nation's output accompanied by inflation in the price level. Supply side of macro.

Front 27

Supply-Side economics

Back 27

macro policy tht focused on a right shift of the aggregate supply curve through tax cuts or others changes to increase production incentives.

Front 28

federal debt

Back 28

a stock variable that measures the net accumulation of annual federal deficits.

Front 29

leading economic indicators

Back 29

variables that predict, or lead to, a recession or recovery. It can't predict when a turning pt. will or whether one will occur.

Front 30

Real GDP per capita

Back 30

real GDP divided by the population; the best measure of an economy's standard of living.

Front 31

Differentiate between stock and flow variables. Give an example of each.

Back 31

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.

Front 32

Describe the various components of fluctuations in economy activity over time. Because economic activity fluctuates, how is long-term growth possible?

Back 32

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

Front 33

Define leading economic indicators and give some examples.

Back 33

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.

Front 34

Why does a decrease of the aggregate demand curve result in less employment, given an aggregate supply curve?

Back 34

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.

Front 35

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.

Back 35

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.

Front 36

Describe the relationship illustrated by the aggregate demand curve. Why does this relationship exist?

Back 36

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.

Front 37

What is the relationship between demand-side economics and the federal budget deficit?

Back 37

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.

Front 38

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?

Back 38

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.

Front 39

How did the recession of 2007-2009 affect the economy?

Back 39

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.