The Science of Macroeconomics Flashcards
Chapter 1
What does macroeconomics study?
Studies the Economy as a whole
What is Macroeconomics
The branch of economics that examines the economy as a whole, focusing on overarching issues rather than specific markets.
What are some key questions that macroeconomists explore?
Key questions include the determinants of long-term growth, reasons for income differences among countries, causes of booms and recessions, the significance of inflation, the role of government stimulus, and how market problems can spread to the economy.
What is GDP per capita?
A measure reflecting the average income level of a country’s residents, calculated as the Gross Domestic Product divided by the population.
What is inflation and why does it matter?
Inflation measures the changes in the cost of living and matters because it affects purchasing power and economic stability.
Unemployment Rate
The percentage of the labor force that is jobless and actively seeking employment.
How do macroeconomists use models and data?
Macroeconomists use models as simplified representations of real-world phenomena to understand complex economic interactions and gather data to test these theories.
What is an economic boom
A period of significant economic growth, often characterized by increased production and employment.
What is the role of government stimulus in macroeconomics?
Government stimulus refers to fiscal measures taken to encourage economic growth, particularly in times of recession or economic downturn
What is a Recession
A period of economic decline, typically defined as two consecutive quarters of negative GDP growth.
The difference between deflation and disinflation
Disinflation is a decrease in the rate of inflation (prices are still rising but at a slower rate than before). Deflation is the decrease in the overall price level.
What is deflation
A decrease in the general price level of goods and services in an economy, often leading to reduced consumer spending.
What does the term “real GDP” signify?
Real GDP is the inflation-adjusted measure of all goods and services produced in an economy, reflecting true economic growth.
What is Long-term Growth defined as for an economy?
The sustained upward trend in the economy’s output over an extended period, often driven by improvements in capital, labor, and technological advancements.
How can macroeconomic problems in one market affect the entire economy?
Problems in one market can lead to reduced consumer spending, lower investments, and increased unemployment, which can collectively impact economic performance
Economic Policy
The actions taken by a government to influence its economy, including fiscal policy, monetary policy, and regulatory measures.
What is a financial crisis?
A financial crisis occurs when the value of financial institutions or assets drops significantly, leading to a loss of confidence and economic instability.
What does it mean to “devise policies” in macroeconomics?
It refers to creating strategies or measures aimed at improving economic performance, such as addressing unemployment, controlling inflation, or stimulating growth.
Define economic growth
An increase in the production of goods and services in an economy over time, typically measured by the growth rate of real GDP.
What are some indicators of macroeconomic performance?
Indicators include GDP growth, inflation rate, unemployment rate, and trade balances.
Define Trade Balance
The difference between the value of a country’s exports and imports over a certain period; a positive trade balance indicates exports exceed imports.
Why is understanding the overall economy important?
Understanding the overall economy helps policymakers design effective interventions, improve economic outcomes, and enhance societal well-being.
Define Aggregate Demand
Aggregate Demand is the total demand for all goods and services in an economy at a given price level and in a given time period.
It shows the amount of output (real GDP) that households, firms, the government, and foreign buyers are willing and able to purchase.
How do macroeconomists measure changes in the cost of living?
Changes in the cost of living are measured through inflation rates, which track the percentage change in price levels over time.
What is an Endogenous variable
A dependent variable, that is influenced by other independent variables in the economic model.
Give an example of an Endogenous variable
National income (Y), dependent on variables like : C,I,G,NX
What is an example of an Exogenous variable
An independent variable that is not influenced by other factors in the economic model.
An example of an Exogenous variables
The components of national income (Y), such as: C,I,G,NX
