CH12: Economic Growth, Unemployment, & Inflation Flashcards
How do New Keynesians differ from New Classicals?
They reject the idea of always-clearing markets.
How is economic growth measured?
Economic growth is measured using indicators such as GDP, which reflects the total value of goods and services produced.
What are the main types of unemployment?
The various types of unemployment include frictional, structural, cyclical, and seasonal unemployment.
What are the three main macroeconomic challenges?
The three macroeconomic challenges are economic growth, unemployment, and inflation.
What is cost-push inflation?
Increases in production costs. / Control wages/profit increases and improve productivity. / Wage hikes, import cost increases, higher profit margins, lower productivity, natural disasters.
What is demand-pull inflation?
There is an increase in income (Y) alongside an increase in aggregate demand (AD). / Increased investment spending can occur due to lower interest rates. / There is an increase in prices (P) as a result of increased aggregate demand. / Production increases as aggregate demand rises. / Increased export earnings can result from improved economic conditions globally. / Demand-pull inflation occurs when aggregate demand increases while aggregate supply remains unchanged, often due to increased consumption, investment, government spending, or export earnings. / Increased government spending can combat unemployment or improve services. / Demand-pull inflation occurs when aggregate demand increases, leading to higher prices. “ “ Illustrated by a rightward shift of the AD curve. / Restrictive monetary (higher interest rates) and fiscal policies (less spending, higher taxes).
What is the business cycle and its phases?
The business cycle refers to the fluctuations in economic activity characterized by periods of expansion and contraction.
Why is economic growth important?
Economic growth is crucial as it contributes to improved living standards and increased employment opportunities.
how is the inflation rate calculated using cpi?
The inflation rate is calculated by determining the percentage change in CPI from one year to another.
what are the distribution effects of inflation?
Inflation redistributes income and wealth, benefiting debtors at the expense of creditors.
what are the economic effects of inflation?
Inflation can lead to lower economic growth and higher unemployment, as decision-makers focus on anticipating inflation rather than pursuing new opportunities.
what are the social and political effects of inflation?
Inflation can lead to social unrest and conflict as people blame each other for rising costs of living.
what factors can lead to increased consumer credit?
Lower interest rates can lead to the availability of consumer credit or cheaper credit.
what is expected inflation?
Expected inflation occurs when people anticipate higher inflation rates and adjust their behavior accordingly, potentially raising actual inflation.
what is frictional unemployment?
Temporary unemployment during job transitions.
what is inflation?
Inflation is the continuous rise in prices in general, characterized by a significant annual increase in the price level of most goods and services.
what is stagflation?
Inflation combined with stagnation (low output and high unemployment).
what is the consumer price index (cpi)?
The CPI is the most commonly used indicator of the general price level, representing the cost of a representative basket of goods and services.
what is the downside of using restrictive policies?
Reduced production, income, and employment.
what is the expanded definition of unemployment?
People who are jobless and available but not actively seeking work.
what is the implicit gdp deflator?
The Implicit GDP deflator is an index that measures inflation as a side-effect of calculating economic growth.
what is the producer price index (ppi)?
The PPI measures the prices at the level of the first significant commercial transaction, excluding services.
what is the relationship between inflation and unemployment?
The relationship between inflation and unemployment can be illustrated using the Phillips curve.
what is the relationship between money stock and aggregate demand?
Increases in the money stock are usually related to increases in components of aggregate demand.
