chapter 1- abel Flashcards
macroecconomics
the study of the structure and performance of national economies and of the policies that governments us to try to afffect economic performance.
average labor productivity
the amount of output produced per unit of labor input
business cycle
short run, but sometimes sharp, contractions and expansions in economic activity
unemployment
the number of people who are available for work and are actively seeking work but cannot find jobs
inflation
when the prices of most goods and services are rising over time
deflation
the prices of most goods and services fall over time
open economy
has extensive trading and financial relationships with other national economies
closed economy
does not interact economically with the rest of the world
trade surplus
when exports exceed imports
trade deficits
when imports exceed exports
fiscal policy
determined at the national, state, and local levels concerns government spending and taxation
monetary policy
determines the rate of growth of the nation’s money supply and is under the control of a government institution known as the central bank
aggregation
the process of summing individual economic variables to obtain economy-wide totals
economic theory
a set of ideas about the economy that has been organized in a logical framework
economic model
a simplified description of some aspect of the economy, usually in mathematical form
4 criteria for models or theory
- are its assumptions reasonable and realistic?
- is it understandable and manageable enough to be used in studying real problems?
- does it have implications that can be tested by empirical analysis?
- when the implications and the data are compared, are the implications of the theory consistent with the data?
empirical analysis
evaluation by comparing implications with data obtained in the real world
positive analysis
examines the economic consequences of a policy but doesn’t address the question of whether those consequences are desirable
normative analysis
tries to determine whether a certain policy should be used
invisible hand
if there are free markets and individuals conduct their economic affairs in their own best interests, the overall economy will work well
equilibrium
situation where there is no pressure for wages or prices to change
classical approach
builds on smiths assumption that pursue their own economic self-interests and that prices adjust reasonably quickly to achieve equilibrium in all markets
Keynesian approach
assumed that wages and prices adjust slowly. assumes that unemployment can persist because wages and prices don’t adjust to equalize the number of people that firms want to employ with the number of people who want to work. as opposed too the classical approach.
stagflation
high unemployment and high inflation
