Intro Flashcards
Define Macroeconomics
It is the branch of economics that focuses on national totals. It studies the structure and performance of national economics and government policies that affect economic performance.
Issues addressed by Macroeconomics
- Long run economic growth
- Business cycles
- Unemployment
- Inflation
- The international economy
- Macroeconomic policy
What Macroeconomics is about?
- National Totals
- Ignores minor diffrences
Define aggregation
Summing individual economic variables to obtain economy-wide totals
Examples of aggregates
- Aggregate consumption
- Aggregate investment
- Aggregate output
Growth rate of GDP formula
[(GDP(new) - GDP(old)) / GDP(old) ] * 100
Why does economic growth differ from one nation to another
- Population size
- Technological change
- Availability of factors of production
- Allocation of resources
- Macroeconomic policies
- Rate of saving and Investment
- Average labour productivity
Business cycle
Short-run contractions and expansions in economic activity
(Not regular seasonal fluctuations)
A complete business cycle is measured from
Peak to peak
Define recession
Decline in Aggregate economic activity
A peak involves
High output, low unemployment, high inflation
A trough involves
Low output, high unemployment, low inflation
Define Unemployment
It refers to the number of people who are available for work and actively seeking work but can’t find jobs
How to calculate unemployment rate
Number of people unemployed/ total labour force
Inflation
A continuous increase in the overall level of prices over time
Deflation
When the overall level of prices of goods and services decline
Stagflation
High inflation + high unemployment
(Stagnation)
Hyper inflation
Extreme inflation. when the inflation rate reaches an extremely high level with prices changes daily .
What is the consequence of hyper inflation
Purchasing power of money erodes quickly and the economy tends to function poorly
The formula of inflation rate
( PRICES(new) - PRICES(old)/ PRICES(old))*100
Define an open economy
An economy with extensive trading and financial relationships with other national economies
Define closed economy
An economy that does not interact economically with the rest of the world
Types of macroeconomic policies
- Fiscal policy
- Monetary policy
Fiscal policy
Concerned with government spending and taxation
Monetary policy
Determines the rate of growth of the nation’s money supply
Who controls the monetary policy
The central bank
Twin deficit refer to
Budget deficit + Trade deficit
Budget Balance equal
Government revenues - Government expense
The range of the Working age population
15 years to 65 years old
Formula of the Average labour productivity
Output / # of workers
