Econ Chapter 5

Only main terms, make sure to study formula matrix as well

Macroeconomics

Branch of economics that deals with large scale concepts, systems and measurements

Business Cycle

Patterns of expansions and recessions that an economy goes through overtime

Inflationary Gap

When the size of the economy inflates (Produces more than its sustainable capacity)

Recessionary Gap

When the size of the economy recesses (Produces less than its sustainable capacity)

Gross Domestic Product (GDP)

Total $$ value of everything produced within a country within one years time.

Formula: Prices Quantities = P * y (output).

Formula: C + I + G + (X-M)

Gross Domestic Product / Capita

Volume of goods & services we have access to.

Formula: GDP / total population

Nominal GDP

Used whenever real GDP is being dealt with.

• Face value

• NGDP has the same # as GDP

Real GDP

GDP adjusted for inflation

• used when dealing with NGDP

• Formula: (Y2 Quantities) * (Year 1 Price)

Aggregate Supply & Demand

Supply and Demand for everything in the economy

Aggregate Demand

Everything that everyone wants

Aggregate Supply

Everything that everyone produces/supplies

Long Run Aggregate Supply (LRAS)

Illustrates how much we can produce regardless of prices.

Stagflation

Phenomenon of the economy not going anywhere and prices increase

Transfer Payments

$$ given from one party to another w/o transfer of a product (ex, gift money)

• indirectly goes back into GDP

Non-market transactions

Non reported transactions

Secondhand sales

Sales of items already included in GDP (ex: ebay, yard sales)

Intermediate Products

Products added to a final product

Market Basket

Select list of goods and services that include prices and quantities.

External Shock

Externality affecting GDP

Natural Rate of Unemployment (NRU)

Rate of unemployment that occurs when the economy is in equilibrium (max. sustainable capacity)

Actual Rate of Unemployment (ARU)

Current unemployment rate

• when the economy is an equilibrium, NRU = ARU

Frictional Unemployment

Most frequent type of unemployment, preventing economy to perform @ maximum sustainable capacity.

Structural Unemployment

Larger less frequent usually due to large companies, large impact

Cyclical Unemployment

Unemployment stemming from changes in the business cycle.

• when the economy is an expansion, cyclical unemployment decreases

• when the economy is an recession, cyclical unemployment increases

Seasonal Unemployment

Products with seasonal demand correlated to unemployment.

ex - private school teachers go through S.U. during the summer

Technological Unemployment

Technology replaces workers, can overlap with technological