Introduction Flashcards
What’s the difference between micro and macroeconomics?
microeconomics focuses on the decisions of individuals and firms, and their consequences. Macroeconomics focuses on the economy as a whole and how these decisions/consequences contribute to overall economic performance.
When studying an economy, macroeconomists look at which 3 variables?
Output - the level of production/growth
unemployment rate - unemployed people looking for a job
inflation rate - how fast the average price of things is rising over time
What does the NIPA do?
- measures the nation’s economic performance
- compares income/output to other nations
- track the company’s condition throughout the business cycle
What is disposable income?
the income that households have after paying taxes and receiving any govt transfers
What is consumer spending (C)?
the total amount of money households spend on goods and services
Government expenditures (G)
purchases of goods and services made by the govt
How else does the govt finance expenditures?
they may burrow from financial markets
Investment spending
spending on productive physical capital ie machinery, as well as changes in inventories
Exports and imports
exports = goods/services produced domestically and sold to other countries
imports = goods/services produced abroad which are purchased by a country’s citizens
Final goods/services
goods/services that are sold to the final user
Intermediate goods/services
goods/services that are purchased by one firm from another to produce a final good
The business cycle
it is a short-run alternation between economic downturns and economic upturns
Recessions
periods of economic downturn is when both output and employment are both failing
Depression
this is a deep and prolonged recession
Expansions/recoveries
periods of economic upturn when output and employment are both rising
Business-cycle peak
when the economy is at its best, before going into a recession
Business-cycle trough
when the economy is at its absolute worst, before it goes into an expansion
Self-regulating economy
problems like unemployment are resolved without government intervention (through the “invisible hand”)
Keynesian economics
post-1930s conventional wisdom that economic slumps by inadequate spending and can be mitigated through government intervention
Stabilisation Policies
policies used to reduce the severity of recessions
What are the two types of stabilisation policies?
monetary policy = changes in the interest rate or quantity of money
fiscal policy = changes in fax policy, government spending, or both.
