Macro Quiz 2 Flashcards
GDP
Total output or total income or total spending in entire economy
GDP per capita
Average income per person
Recession
Significant decline in GDP or economic activity
Depression
A large recession
Unemployment
Those wanting a job and don’t want one
Labor Force
All employed and unemployed workers
Discouraged workers
People who want to work but give up trying because of poor labor market
Cyclical Unemployment
Unemployment related to the business cycle
What is an example of cyclical unemployment?
Recession
Structural Unemployment
Mismatch of what employers are looking for and what employees have
What is an example of structural unemployment?
Manufacturing jobs
Frictional Unemployment
Includes people that are just entering the workforce or people who leave their jobs and look for better ones
What does C stand for in C + G + (I-E) + i Equation?
Consumer spending
What does G stand for in C + G + (I-E) + i Equation?
Government Spending
What does (I-E) stand for in C + G + (I-E) + i Equation?
Net Exports
What does i stand for in C + G + (I-E) + i Equation?
Investment
Output
All goods and services in the economy
What are the 5 shortcomings of GDP?
Does not explain technological change
Does not show inequality
Does not show time cost
Does not include pollution as a result of activity
-Just because we produce more, does not mean people are better off
What is an example of GDP not accounting for technological change?
Free apps
What is an example of GDP not accounting for inequality?
Many people can be in poverty despite a high GDP
What is an example of GDP not accounting for time cost?
I cleaned the dishes but that value is not included
What is an example of the GDP shortcoming of when we produce more does not mean we are better off?
Hurricanes result in many new homes
Inflation
When prices increase
Inflation Rate
the percent change in prices
What are 3 reasons that Aggregate Demand is downward sloping?
Interest rate effect
International effect
Money wealth effect
Interest Rate Effect
If price increases, then the value of the dollar decreases because people cannot buy as much
International effect
If price increases in the United States, exports decrease because goods are more expensive relative to other countries. Therefore, imports increase.
Recessionary Gap
When actual output is below potential output
Inflationary Gap
When actual output is above potential output
What is an example of a countercyclical policy?
Reducing government spending and raising taxes during a boom
What does marginal propensity to consume stand for?
MPC
Marginal propensity to consume
How much of each dollar is spent
- As income increases, MPC decreases
Multiplier effect
Change in government spending leads to a change in output
What 4 things affect Aggregate Demand?
Consumer Spending
Investment
Government Spending
Net Exports
What happens to government spending when there is an increase in price level?
The government will reduce spending to control price level during the boom
What are 3 ways GDP per capita fails as a measure of well being?
Does not show economic inequality
Does not show social inequality
Does not account for pollution
Why doesn’t GDP per capita show economic inequality?
Can still be a large number of people in poverty even if GDP per capita is high
Why doesn’t GDP per capita show social inequality?
African Americans are often discriminated in United States despite high GDP per capita
Why doesn’t GDP per capita account for pollution?
In China the air is really polluted regardless of GDP per capita
Growth
Increases in output and income
As a result, what does growth increase?
Standard of living
When growth increases income, what 2 positive things happen?
Can afford more things
Results in higher life expectancy
What are the 5 sources of growth?
Growth compatible institutions Investment and Accumulated Capital Available Resources Technological Development Entrepreneurship
What are 2 examples of growth compatible institutions?
Markets
Private Ownership
Growth Compatible Institutions
When people gain from growth, they are more likely to work harder
Investment and Accumulated Capital
Taking savings and putting them towards something in the hopes of getting a greater return
What is an example of Investment and Accumulated Capital?
Stock Market
Available Resources
The more resources you have, the more you can produce
Technological Development
When technology develops, it allows resources to be used more efficiently
Entrepreneurship
Ability to get things done
What is an example of Entrepreneurship?
Starting a business
Institutions
Formal and informal patterns, rules and regulations of behavior
What are 4 examples of institutions?
Investing
Technological Advancements
Markets
Entrepreneurship
Human Capital
People ability to perform or produce something
Physical Capital
Consists of land, buildings, equipment or machines
What does physical capital enable?
Enables production process
Social Capital
The need of others to produce a good
