Macro Unit 1 Flashcards
Aggregate demand
total demand of everyone in a country
3 indicators of an economy
- economic growth
- level of employment
- price stablilty
4 sectors
all participate in the production of goods (supply and demand)
- households
- businesses
- government
- foreign entities
Households
Individuals live together and make collective decisions
Consume goods and services
Businesses
Private producers of goods and services
Organize factors of production to produce goods
private sector
Government
Political units of a country
Consumes some output/organizes some factors of production to produce some goods
public sector
Foreign entities
All economies outside the economy being studied
Comsumes/produces output
international sectpr
In an economy, income must equal…
Why?
expidenture
Every dollar one perosn spends on a goods contributes to the income of another
GDP
Gross domestic product
Market value of all final goods and services produced within a country in a given period of time
GDP
“Market value”
GDP uses market prices to measure the amount people are willing to pay for different goods, prices reflect the value of the good.
GDP
“All”
GDP includes all items produced in the economy and sold in the markets
GDP
“Final”
Includes value of final goods only, not intermediate goods. If a card is produced the paper used to make it (the intermediate good) is not included, but the final product (the card) includes both the paper and the good
GDP
“Goods and services”
Includes both tangible and nontangible goods
GDP
“Produced”
Only includes goods and services currently produced, not transactions of items produced in the past
GDP
“Within a country”
Measures value of production within the geographical confines of a country, only domestic goods
GDP
“In a given period of time”
Measures value of production within a specific time period
GDP=
C + I + G + NX
C
Consumption: spending by households on goods and services (does NOT include housing).
Includes durable and nondurable goods
I
Investment: spending on capital equipment, inventories, and structures (includes housing)
G
Government purchases: spending on goods and services by local, state, and federal governments
Does not include transfer payments such as social security
NX
Net exports: spending on domestically prododuced goods by foreigners
exports-imports
Inventories
Goods are added to GDP when they enter inventories
Real GDP
measured at constant priced ADJUSTED FOR INFLATION
Nominsl GDP
measured at current prices NOT ADJUSTED FOR INFLATION
GNP
What is it equal to?
Gross national product
Total income earned by a nation’s permanent resident
-includes income of a U.S. citizen abroad
-excludes income of a foreigner in the U.S.
GNP=GDP
Inflation
A general increase in prices throughout an economy
Deflation
a general decrease in price
Inflation rate
% change from year to year
What causes inflation?
- Increase in money supply
- A supply and demand of goods and labor
Demand pull inflation
caused by consumer demand for goods increasing faster than the economy can produce the goods
Cost push inflation
caused by businesses reducing the amount supplied due to increasing costs
Real=
Nominal-inflation
GDP deflator
Used to calculate rate of inflation
Nominal GDP/Real GDP x 100GDP deflator is 100 in the base year
CPI
Consumer price index, shows the costs of goods and services bought by a typical consumer (basket of goods)
Used to calculate inflation rate
Calculating inflation with CPI
CPI in year X - CPI in year Y/ CPI in year Y x 100
Producer price index
measuring inflation using a basket of goods and services bought by firms
Headline inflation
reported on news based on CPI
Core inflation
excludes energy and food prices
What happens when goods are added to inventories?
They count as produced and are added to GDP
Labor force
People who are employed + people looking for jobs
Unemployment rate=
Workers/labor force
Discouraged worker
Individual who has given up looking for work
Not counted in labor force
Natural rate of unemployment
Around 5% unemployment rate is expected
Cyclical unemployment
Caused by changes in business cycle. Deviations from natural rate of unemployment
Frictional unemployment
Unemployment from workers looking for better jobs
Structural unemployment
When QS of job seekers exceeds QD
Usually occurs from structural problems in the economy
