0014 Aggregate Economic Behavior of the American Economy (SMR 5.5) Flashcards
What is an aggregate economy?
Full measurement of an economy
How do we measure economic performance in an aggregate economy?
GDP
Price Index
Interest Rate
What is the GDP?
Gross Domestic Product: total value of goods and services produced in a year inside a nation’s borders (various methods of measuring), largest measure of nation’s income
What does it mean when we say Real GDP?
That it has been adjusted for inflation
What is the Price Index?
Changes in prices of certain goods and services in a period of time, usually done monthly and tells us whether we’re experiencing inflation or a recession, determines interest rates
What is the Consumer Price Index?
Change in prices of consumer goods (selected products and services)
What does the Interest Rate measure?
It measures the supply of money in the economy
The interest rate is often taken as a tool of both measuring and _____ the supply
Controlling; interest rates changes based on the supply of money and this can be controlled by the Federal Reserve
What is the Market Interest Rate?
Set up by demand and supply of money available for loans, banks determine what the interest rate will be based on money coming in and loans going out
What are National interest rates?
Short term interest rates controlled through the federal reserve’s ability to buy and sell treasury securities
What happens if the Fed sells bonds?
It decreases the supply of money and interest rates go up
What happens if the Fed buys bonds?
It increases the supply of money and interest rates go down.
How do lower interest rates help to stimulate the economy?
because the lower interest rates are, the more people will travel, buy homes, buy cars, etc.
What are the three types of unemployment?
Frictional
Structural
Cyclical
What is frictional unemployment?
the time period between jobs, when a worker is searching for, or transitioning from one job to another.
