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Econ > Macro Unit One > Flashcards

Macro Unit One Flashcards

1
Q

Three key macroeconomics indicators of “doing well”

A 
Economic growth
-measured in GDP
Level of employment
-measured by the unemployment rate
Price stability
-measured by inflation
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2
Q

Households

A

Individuals who live together and make collective economic decisions
Historically consume around 67-70% of the goods and services produced

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3
Q

Business

A

Private producers of goods and services
Organize factors of production to produce goods
aka Private Sector

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4
Q

Government

A

Political units of a country
Consumes some output/organizes some factors of production to produce some goods
aka Public Sector

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5
Q

Foreign

A

All economies outside the economy being studied
Consumes/produces some output
aka International Sector

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6
Q

Financial Market

A

Securities and commodities are bought and sold

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7
Q

Formulas

A 
Y = GDP
Y = C + I + G + X (consumption + investment +government spending + net exports)
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8
Q

C

A

Consumption
Household spending on new goods and services
Durable AND non-durable goods are included
“Used housing” is accounted for by adding in “monthly rental value”

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9
Q

I

A 
Investment
Business spending on:
-capital goods (capital stock) (ex. equipment/machines, buildings, etc.)
Household spending on:
-new housing
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10
Q

G

A

Government Purchases
Government spending on goods and services
Does not include transfer payments, such as Social Security

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11
Q

X

A

Net Exports
Exports (goods leave the country; payments come in)
MINUS
Imports (goods come into the country; payments leave)
Exports - imports

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12
Q

Inventories

A

Goods are added to GDP when they enter inventories
-they count as produced and are added to inventories
-when the goods are sold:
~value is subtracted from inventory
~added to “sales”

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13
Q

Real

A

Measured at constant prices

Adjusted for inflation

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14
Q

Nominal

A

Measured at current prices

Not adjusted for inflation

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15
Q

Gross National Product

A

The total income earned by a nation’s permanent residents
-includes income US citizens earn abroad
-excludes income foreigners earn in the US
GDP ≈ GNP
Conclusions: Y = output and Y = income

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16
Q

Inflation

A

A general increase in prices throughout and economy

17
Q

Deflation

A

A general decrease in prices

18
Q

Inflation Rate

A

Percent change from one year to the next

19
Q

“Demand-Pull” Inflation

A

Caused by consumer demand for goods increasing faster than the economy can produce the goods

20
Q

“Cost-Push” Inflation

A

Caused by businesses reducing the amount supplied due to increasing costs
-due to an increase in the price of an input (oil, wages, etc.)

21
Q

IMPORTANT EQUATION

A 
Real = Nominal - Inflation
Applications:
-GDP
-wages
-interest rates
22
Q

GDP deflator

A

Used to calculate rate of inflation
(Nominal GDP/Real GDP) x 100
GDP deflator is 100 in the base year
Calculate the percent change in the deflator to find the inflation rate

23
Q

Consumer Price Index (CPI)

A

Shows the costs of goods and services bought by a typical consumer (basket of goods)
Used to calculate the inflation rate
(Price of a basket of goods and services/Price of basket in base year) x 100

24
Q

Calculating inflation with CPI

A

The following equation can be used to find percentage changes:
Inflation in year X = ((CPI in year X - CPI in year Y)/(CPI in year Y)0 x 100

25
Q

Producer Price Index

A

Measuring the inflation using a basket of goods and services bought by firms

26
Q

Unemployment rate

A

Percentage of labor force that is unemployed

Unemployment rate = unemployed workers/labor force

27
Q

Labor force

A

People who are employed + people who are actively looking for jobs

28
Q

Discouraged workers

A

Individuals who have given up looking for work

-they are NOT counted in the labor force

29
Q

Natural Rate of Unemployment

A

Around 5% of workers are expected to be unemployed at any given time
This is considered an equilibrium and includes frictional and structural unemployment

30
Q

Full employment level of output

A

5% unemployment

31
Q

Cyclical Unemployment

A

Deviations from the natural rate of unemployment

-caused by changes in the business cycle

32
Q

Frictional unemployment

A

Unemployment that results from a worker’s search for the right job

33
Q

Structural unemployment

A

Results when the quantity supplied of job seekers exceeds the quantity demanded
Usually occurs because of structural problems in the US economy
-can be caused by above average wages, changes in technology, diseconomies of scale, etc.
Doesn’t go away on its own
-might require massive “structural changes” to the economy

Econ (14 decks)

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