Macroecon Flashcards
Identify the five major sectors (or elements) of a macroeconomic free market flow model.
- Individuals
- Business entities
- Governmental entities
- Financial entities
- Foreign entities
In a macroeconomic free market flow model, what are “leakages”?
Leakages are the purposes for which individual income is used other than for domestic consumption expenditures. These leakages include amounts of income that go for taxes, savings, and payments for imports.
In a macroeconomic free market flow model, what are “injections”?
Injections are the sources of amounts added to domestic production that do not result from domestic consumption expenditures. These injections include amounts that come from government spending and subsidies, investment spending, and amounts received for exports.
Define “nominal gross domestic product (nominal GDP).”
Total output of final goods and services produced for exchange in the domestic market during a period (usually a year), without adjustment for changing price levels
Define “national income (NI).”
The total payments for economic resources included in all production (but not including taxes as a payment)
Define “gross national product (GNP).”
Total output of all goods and services produced worldwide using economic resources of U.S. entities
Define “potential gross domestic product (potential GDP).”
The maximum final output that can occur in the domestic economy at a point in time, without creating upward pressure on the general level of prices in the economy
Define “personal disposable income.”
Amount of income that individuals have available for spending, defined as total personal income after taxes are deducted.
Define “real gross domestic product (real GDP).”
Total output of final goods and services produced for exchange in the domestic market during a period (usually a year), measured at constant prices
Define “net national product (NNP).”
Total output of all goods and services produced worldwide using economic resources of U.S. entities, but only including the cost of investment in new capital (excludes depreciation)
Identify important gross measures used in macroeconomics.
Measures of total activity or output in an economy including: Nominal gross domestic product (GDP) Real gross domestic product Potential gross domestic product Gross national product (GNP) Net national product National income Personal disposable income
Define “cyclical unemployment.”
Unemployment in which members of the labor force are not employed because a downturn in the business cycle has reduced the current need for workers
Define “official full employment.”
Officially, full employment exists where there is no cyclical unemployment. When there is official full employment, there could still be frictional, structural, and/or seasonal unemployment.
Define “seasonal unemployment.”
Unemployment in which members of the labor force are not employed because their work opportunities regularly and predictably vary by the season of the year
Define “frictional unemployment.”
Unemployment in which members of the labor force are not employed because they are in transition between jobs or have imperfect information about job opportunities
Identify characteristics that exclude individuals from the labor (or work) force.
The following are not included in the labor force:
- Those less than 16 years old
- The retired
- Those not actively seeking work
- Those who are institutionalized
- Military members on active duty
Define “structural unemployment.”
Unemployment in which members of the labor force are not employed because their prior types of jobs have been greatly reduced or eliminated, and/or because they lack the skills needed for available jobs.
Define “aggregate demand.”
Total spending of individuals, businesses, governmental entities, and net foreign spending on goods and services at different prices at the macroeconomic (economy) level
What is the effect of interest rate on investment spending?
1) Higher interest rates lead to lower levels of investment.
2) Lower interest rates lead to higher levels of investment.
What are the factors that influence investment spending?
Interest rate Demographics Consumer confidence Consumer income and wealth Current vacancy rates Level of capacity utilization Technological advances Current and expected sales levels
Define the “consumption function.”
The relationship between consumption spending and disposable income
Define “marginal propensity to consume (MPC)” and “marginal propensity to save (MPS).”
MPC = Change in consumption as a result of a change in disposable income (or percentage of an additional dollar of disposable income that will be spent)
MPS = Change in savings as a result of a change in disposable income (or percentage of an additional dollar of disposable income that will be saved).
MPC + MPS = 1 (i.e., the change in disposable income).
List the significant factors that cause a negatively-sloped demand curve.
- Interest rate factor
- Wealth-level factor
- Foreign purchasing power factor
Define “average propensity to consume (APC)” and “average propensity to save (APS).”
- APC = Percentage of disposable income spent on consumption goods
- APS = Percentage of disposable income saved
- APC + APS = 1 (i.e., disposable income)
Define “discretionary fiscal policy.”
Intentional changes by the government in its tax receipts and/or spending to increase or decrease aggregate demand (e.g., to close a recessionary gap, increase demand; to close an inflationary gap, reduce demand).
Give at least three examples of investment spending.
- Residential construction
- Nonresidential construction
- Business durable equipment
- Business inventory
What are the factors that determine the level of imports/exports?
1) Relative levels of income and wealth
2) Relative values of currencies
3) Relative price levels
4) Import and export restrictions and tariffs
5) Relative inflationary rates
What is the slope of a conventional aggregate supply curve?
It is a continuously positive slope, with a steeper slope beginning at the level of full employment; supply increases with price but requires proportionately higher prices at full employment.
Define “aggregate supply.”
Total output of goods and services at different price levels at the macroeconomic (economy) level
What factors will cause a change in the level of a supply curve?
Resource availability
Resource cost
Technological advances
Note: Not the price of the item supplied, which causes a movement along a given supply curve.
What is the slope of a classical aggregate supply curve?
It is completely vertical; supply remains unchanged at various price levels.
What is the slope of a Keynesian aggregate supply curve?
It is horizontal up to the level of output at full employment, then slopes upward to the right; supply increases with no change in price until the economy is at full employment.
