2. A tour of the book

Question 1

Aggregate output / GDP

Answer 1

GDP - the value of the final goods and services produced in the economy during a given period
Nominal GDP - the sum of the quantities of final goods produced times their current price.
Real GDP - the sum of the quantities of the final goods produced times constant prices.
GDP growth - the rate of growth of real GDP –> expansions (periods of positive GDP growth) –> recessions (periods of negative GDP growth)

Question 2

The Unemployment rate

Answer 2

L=N+U
Labor force = employment (nr of people who have a job) + unemployment (people who do not have a job but are looking for one)
u=U/L
Unemployment rate = Unemployment/ labor force
Participation rate - the ratio of the labor force to the total population of working age

Question 3

Output, Unemployment and the Inflation rate

Answer 3

Okun’s law : Output growth Unemployment (-)

The Phillips Curve : Unemployment Inflation (-)

Question 4

The short run; the medium run and the long run

Answer 4

Short run: movements in output are driven by movements in demand (as a result of change in consumer confidence or other factors)
Medium run: The economy tends to return to the level of output determined by supply factors (the capital stock, the level of technology, the size of the labor force)
Long run: capital accumulation and technological progress determines growth