MACRO- unit one Flashcards
Discouraged worker
Employees who have left the labor force because they were unable to find employment
Fisher equation
.
Disposable income
Personal income-taxes (what you receive)
Durable goods
Hardest hit during a recession (goods that people do not buy during a recession)
Most economists believe that the immediate causes of business cycles are changes in the level of this
total spending
NBER national bureau of economic research
The group that gets to officially decide whether or not a recession has occured
BLS
Bureau of labor statistics
Frictional unemployment
Good unemployment
Two specific categories: search unemployment and wait unemployment
Consumer Price Index
Price of market basket of goods in current year/Base year price of basket of goods x100
Amount of official us recessions since 1950
10
Demand-pull inflation
“Too much spending chasing too few goods”
When the business cannot respond to excess demand in any way but raise the prices
*Economists argue about the affect of this
Cost-push inflation
Rising per unit costs reduce the amount of output firms are willing to produce which in turn raises the price
Main source is supply-shocks
*Reduces real output and redistributes a decreased level of income
Intermediate goods
products for further processing or resale
Final goods
products purchased by end users
Net domestic product
market value of GDP (consumption of fixed capital)
National income
income earned through use of american earned resources, includes taxes on production and imports
Personal income
all income (earned or not) by households
Disposable income
all income received minus taxes
Short comings of GDP
- nonmarket activities (services of stay at home parents)
- leisure
- improved product quality
- GDP does not measure well being
National accounting income enables economists to
- assess economy health
- track the long run course economy
- formulate policies
When do prices fall during the business cycle?
Recession
Sticky prices
prices that are slow to change in the short run, they respond by changing employment and output but not by changing prices
Demand shocks
unexpected changes in demand
Supply shocks
unexpected changes in supply
Rule of 70
.
The economy can only grow if
it invests and the economy can only invest if it saves some output
Economic investment
creation and expansion of business enterprises
Financial investment
What ordinary people refer to as investment, the purchase of assets such as stocks and bonds
Investment
resources devoted to increasing output (ie: producing capital)
Saving
Consumption<income
Macroeconomics studies
long run economic growth and short run economic fluctuations
What are the three things macroeconomics looks at?
1) Real GDP (value of goods and services produced)
2) Unemployment rate
3) Inflation
How do living standards rise?
When the economy grows faster than the population
*Key to raising living standards is saving and investment
What are the two ways to measure GDP?
Expenditures approach or the income approach
GDP consists of
new items and final goods
Expenditures approach
C+I+G+(X-M)
Private Consumption=majority of GDP, it is whatever we buy
Business Investment=anything a business buys to use for their service/good, any new construction (even if it is a private home), change in inventories
Government
Net exports (+exports-imports)
What does not count in GDP?
Stocks and transfer payments
Real GDP
adjusted for inflation
Personal income
Total amount of income received (earned or not earned)
Depreciation
Consumption of fixed capital
an estimate of the amount of the amount of capital used up in producing the GDP
Labor force
At least 16 years old, not institutionalized, and looking for work
Unemployment rate
people who want work and are looking/total labor force
Is military in the labor force?
No
Cyclical unemployment
Desired skills but the economy is not doing well enough to hire
Structural unemployment
No desirable skills (because of technology)
Seasonal unemployment
Is not one of the three types but an example is a lifegaurd
Full employment
The same as natural rate of unemployment
Only frictional and structural unemployment, no cyclical
Inflation
<2% means price stability
Four phases of the business cycle
Peak, recession, trough, expansion
Peak
Business activity has reached a temporary maximum
Near or at full employment
Price level is likely to rise
Recession
Period of decline in total output, income and unemployment
Generally 6 months or more
Trough
Output and unemployment bottom out, can be short or long
Expansion
Real GDP, income and employment rise
Prices will rise and inflation will occur
National income
Total amount earned by american owned businesses
Net domestic product
How much we are better off
Net domestic product+depreciation
GDP
Okun’s Law
Any rise of 1% above the full employment rate will lead to a 2% rise in the negative GDP gap
Who calculates the CPI?
BLS
Bureau of labor statistics
How to calculate inflation
% change in CPI or % change in GDP deflator
current-previous/previous
x100
GDP deflator
nominal GDP/real GDP x100
Uses ALL of what we produce
What are 5 shocks that can cause business cycles
- irregular innovation
- productivity changes
- monetary factors
- political events
- financial instability
What goods are most affected by business cycles?
Durable goods and capital goods because people can postpone buying these goods and make do with what they already have
Durable good
a good with a life longer than 3 years
Nondurable good
A good with a life less than 3 years
NRU
natural rate of unemployment
the point where the economy is producing its potential output
GDP gap
Actual GDP-potential GDP
In GDP the largest dollar amount is
consumer spending
The largest dollar amount of national income is
wages and salaries
What is leakage from the circular flow of economic activity?
saving
Income approach
Compensation of employees, rents, interest, proprietors’ income, corporate profits, taxes on production and imports
