Chapter 19 Flashcards
Objectives of Macroeconomics
- High output level.
- Low unemployment level.
- Stable prices.
Instruments of Macroeconomics
- Monetary Policy.
- Fiscal Policy.
Monetary Policy
Interest rates.
Fiscal Policy
Taxation and government expenditures.
Gross Domestic Product (GDP)
Total number of final goods and services produced in a country during a year. Used to measure output.
Nominal GDP
Accounts for current market prices.
current price x current quantity
Real GDP
Calculated in constant prices.
Real GDP Growth Rate
100 x (new - old) / old
GDP per Capita
GDP / population
Potential GDP
Maximum level of output that can be produced if the country used full employment.
Recession
A period of significant decline in total output and employment, lasts more than a few months.
Depression
A sever downturn in output and employment.
Business Cycles
Occur when there is an output gap between actual and potential output.
Labor Force
Includes all employed and unemployed individuals who are looking for a job.
Unemployment Rate
Percentage of labor force that is unemployed.
What changes might a fall in output cause?
Demand for labor falls, thus unemployment rate rises.
Inflation Rate
Percentage change in overall prices over a year.
= 100 x (New - Old) / Old
Consumer Price Index (CPI)
Measure of the average price of group of goods and services consumed by a typical family.
Headline Inflation
Rate of change in CPI.
Core Inflation
Rate of change of prices of consumer basket, excluding food and energy.
Deflation
When prices decline.
Hyperinflation
When prices rise by 1000% or 1000000% a year.
Government Expenditures
- Government Purchases: construction and salaries.
- Government Transfer Payments: to elderly.
Current Account Balance / Net Exports
Difference between exports and imports.
