4.1-4.3 Notes Econ

Macroeconomics

Studies the economy as a whole — growth, employment, prices, and how government/central bank decisions affect the entire economy.

Three Economic Goals

Economic Growth, Price Stability, Full Employment.

Economic Growth Measurement

Real GDP.

Price Stability Measurement

Consumer Price Index (CPI).

Full Employment Measurement

Unemployment Rate.

Gross Domestic Product (GDP)

Total market value of all final goods and services produced within a country's borders in a given year; measure of national income and economic well-being.

Final Goods

Goods intended for the end user.

Intermediate Goods

Goods used as components or ingredients in producing other goods.

Components of GDP

C + I + G + (X − M).

Consumption (C)

Spending by households on goods and services.

Investment (I)

Business spending on capital goods.

Government Purchases (G)

Government spending on goods/services.

Net Exports (X − M)

Exports minus imports.

Nominal GDP

GDP measured in current prices; NOT adjusted for inflation.

Real GDP

GDP measured in constant (base-year) prices; ADJUSTED for inflation.

Real GDP per Capita

Real GDP divided by total population; best indicator of average standard of living.

What GDP Leaves Out

Leisure time, nonmarket activities, inequality, quality of life, intermediate goods, used goods, underground/black market, financial transactions, household production, transfer payments.

Economic Growth

Long-term increase in quantity and quality of goods/services an economy can produce; measured by % change in Real GDP.

Unemployment Rate

Percent of the labor force that is unemployed.

Unemployment (definition)

When labor-force participants cannot find jobs but are actively seeking work.

Labor Force

People age 16+ who are employed or actively seeking employment.

Not in Labor Force

People not working AND not seeking work.

Full Employment

When only frictional + structural unemployment exist; no cyclical unemployment.

Frictional Unemployment

Short periods of unemployment while people move between jobs or enter the labor market.

Structural Unemployment

Caused by mismatch between workers' skills/location and job requirements/location.

Cyclical Unemployment

Unemployment caused by downturns in the economy or insufficient aggregate demand.

Seasonal Unemployment

Unemployment due to seasonal job changes or labor-supply patterns.

Computer programmer laid off due to a recession

Cyclical unemployment.

Literary editor moves from New York to San Francisco to find a job

Frictional unemployment.

College graduate looking for first job

Frictional unemployment.

Assembly-line worker replaced by technology

Structural unemployment.

22-year-old volunteering abroad, not job-seeking

Not in the labor force.

Cashier laid off due to economic downturn

Cyclical unemployment.

High school graduate lacking required job skills

Structural unemployment.