Macroeconomics: GDP, Unemployment, Inflation, Trade and AD/AS Model

Flashcards covering key concepts on GDP, unemployment, inflation, trade balances, and the AD/AS model.

What does GDP measure?

The size of a nation's economy and the value of all goods and services produced within a country in a year.

What are the components of aggregate demand?

Consumption, Investment, Government Spending, and Net Exports.

What is Nominal Value in terms of GDP?

The prices/values that currently exist at the time without adjustment for inflation.

What is Real Value in terms of GDP?

The prices/values that adjust for inflation using a base year and price index.

What defines a recession?

A significant decline in GDP that begins at the business cycle's peak and ends at the trough.

What is the difference between a trade deficit and a trade surplus?

A trade deficit is a net inflow of financial capital, while a trade surplus is a net outflow of financial capital.

What does the unemployment rate represent?

The number of unemployed people divided by the number of people in the labor force.

What is Structural unemployment?

Unemployment that occurs when demand permanently shifts away from certain skill types.

What does CPI stand for and what does it measure?

Consumer Price Index; it measures inflation based on a basket of goods typical for consumers.

What does the term 'aggregate production' refer to?

The output measured as per capita that arises from inputs like human capital, physical capital, and technology.

What causes changes in unemployment over the long run?

Economic, social, and political forces that influence labor market dynamics.

What is the Current Account Balance?

The balance of trade in goods, services, and money flows into and out of a country.

What are the components of trade balance?

Exports and imports of goods and services.

What is a key factor in measuring productivity?

GDP per worker or GDP per hour.

What does the Business Cycle depict?

The fluctuations in GDP growth characterized by periods of expansion and contraction.

What is 'Capital Deepening'?

An increase in the amount of capital per worker, which can be human or physical capital.

What is the natural rate of unemployment?

The rate of unemployment that exists even when the economy is not in recession.

What is the impact of inflation on wages and interest payments?

Wages and interest payments do not typically rise with inflation.

What does Convergence in economic growth indicate?

Lower GDP per capita countries catching up with higher GDP per capita countries through investment.

How does Say's Law relate to demand and supply?

Supply creates its own demand.

What does Keynes' Law emphasize?

Demand creates its own supply.

What is the relation of AD shifts to economy?

Shifts to the right indicate increases in consumption, investment, government spending, or net exports; shifts left indicate decreases.

What is Stagflation?

A condition of lower output and higher unemployment coupled with higher inflation.

What are the implications of a high unemployment rate?

High opportunity costs of unused resources.

What is the purpose of adjusting Nominal to Real GDP?

To account for inflation using a base year and price index.

What does a downward slope in the AD curve represent?

The negative relationship between price level and total spending.

What factors can shift the AS curve to the right?

Increases in productivity, drops in key input prices, and lower inflation.

What does the AD/AS model help to analyze?

Macroeconomic issues like inflation, unemployment, and economic growth.

What influences the measure of standard of living?

GDP, but it excludes factors like environmental quality and income inequality.

Define Inflation Rate.

The percentage change between price levels or index numbers over time.

What is the implication of constantly innovating technologies?

It can mitigate diminishing returns in economic growth.

What are the limitations of a fixed basket of goods in measuring inflation?

It doesn't allow for changes in consumption patterns or improvements in quality.