From Micro to Macro: Aggregate Economy

Question 1

unemployment

Answer 1

when a person willing and able to work is not employed

Question 2

population of working age

Answer 2

usually 15-64 year olds

Question 3

labor force

Answer 3

people in population of working age who are or wish to be employed

Question 4

inactive population

Answer 4

people in population of working age who are neither employed nor looking for a job

Question 5

participation rate

Answer 5

labor force / population of working age

Question 6

unemployment rate

Answer 6

unemployed / labor force

Question 7

employment rate

Answer 7

employed / population of working age

Question 8

recession - NBER definition

Answer 8

output is declining, a recession is over once the economy begins to grow again

Question 9

recession - alternative definition

Answer 9

level of output is below normal level, even if economy is growing; recession is not over until output has grown enough to be normal again

Question 10

business cycle

Answer 10

alternating periods of faster and slower growth rates (BOOM-RECESSION)

Question 11

Okun’s law

Answer 11

empirical negative relationship between growth of GDP and the unemployment rate (🔼🔽)

Question 12

Okun’s coefficient

Answer 12

change in unemployment rate in percentage points associated with a 1% change in GDP

Question 13

3 ways to estimate GDP

Answer 13

spending, production, income

Question 14

value added

Answer 14

value of output - value of all inputs = profits before taxes + wages

Question 15

(M)

Answer 15

imports - goods and services produces in other countries ad purchased by domestic households, firms, government

Question 16

(X)

Answer 16

exports - goods and services produced in a particular country and sold to households, firms, governments in other countries

Question 17

(C)

Answer 17

consumption - expenditure on consumer goods

Question 18

(I)

Answer 18

investment - expenditure on newly produced capital goods and buildings

Question 19

inventory

Answer 19

things produced but not sold, production but no income

Question 20

(G)

Answer 20

government spending - expenditure by government to purchase goods and services (DOES NOT INCLUDE TRANSFERS)

Question 21

government transfers

Answer 21

spending by government in form of payments to households or individuals, e.g. pensions (count as C)

Question 22

trade balance

Answer 22

= net exports (X - M)

Question 23

trade deficit

Answer 23

negative trade balance (imports more than exports)

Question 24

trade surplus

Answer 24

positive trade balance (exports more than imports)

Question 25

aggregate demand equation

Answer 25

Y = C + I + G + (X - M)

Question 26

inflation

Answer 26

increase in general price level in an economy

Question 27

deflation

Answer 27

decrease in general price level in an economy

Question 28

consumer price index (CPI)

Answer 28

measure of general level of prices

Question 29

GDP deflator

Answer 29

measure of the level of prices for domestically produced output (ratio - nominal GDP : real GDP)

Question 30

multiplier effect

Answer 30

when direct and indirect effects of a change in autonomous spending affect aggregate output, e.g. building a new school leading to construction workers spending more money on everyday goods

Question 31

disinflation

Answer 31

the inflation rate is falling

Question 32

nominal interest rate

Answer 32

interest rate uncorrected for inflation

Question 33

real interest rate

Answer 33

interest rate corrected for inflation (nominal - inflation rate)

Question 34

relative price

Answer 34

price of one good or service compared to another (ratio)

Question 35

Philips curve

Answer 35

inverse relationship between the rate of inflation and the rate of unemployment (high & low & vice versa)

Question 36

Great Depression timeline

Answer 36

1929 onwards

Question 37

Golden Age timeline

Answer 37

end of WWII till early 1970s

Question 38

‘08 crisis timeline

Answer 38

2007 onwards

Question 39

subprime borrower

Answer 39

individual with low credit rating and high default risk

Question 40

positive feedback loop

Answer 40

process where some initial change sets in motion a process that magnifies that initial change

Question 41

supply side

Answer 41

how labor and capital are used to produce goods and services

Question 42

great moderation

Answer 42

low volatility in aggregate output between 1980s and ‘08

Question 43

gold standard

Answer 43

system of fixed exchange rates, abandoned in Great Depression (value of currency defined in terms of gold)

Question 44

zero lower bound

Answer 44

nominal interest rate cannot be negative (minimum 0)

Question 45

New Deal

Answer 45

Roosevelt’s program of emergency public relief programs to employ millions of people

Question 46

Bretton Woods system

Answer 46

international monetary system of fixed but adjustable exchange rates (established end of WWII, replaced gold standard)

Question 47

catch-up growth

Answer 47

how many economies in the world close the gap between the world leader and their own economy

Question 48

secret of golden age’s performance in productivity

Answer 48

• changes in policymaking
• new arrangements between employers and workers

Question 49

virtuous cycle of the golden age

Answer 49

after-tax profits remained high → profits led to investment → high investment and technological progress created more jobs → the power of workers

Question 50

postwar accord

Answer 50

informal agreement between employers, governments and trade unions that created conditions for rapid economic growth from late 40s to early 70s

Question 51

stagflation

Answer 51

persistent high inflation + high unemployment

Question 52

supply-side policies

Answer 52

designed to improve the economy by increasing productivity and international competitiveness (cutting taxes on profits, changing legislation, reform of competition policy)