Chapter 19: The Macroeconomic Perspective

Goals of Macroeconomics

Economic growth, low unemployment, low inflation

Framework of Macroeconomics

Aggregate demand, Aggregate supply, Keynesian model, Neoclassical model

Macroeconomic Policy Tools

Monetary Policy, Fiscal Policy

Goals

A consensus of what are the most important goals for the macro economy

Framework

What economists use to analyze macroeconomic changes (such as inflation or recession).

Policy Tools

The tools the federal government uses to influence the macro economy

Gross Domestic Product

The value of the output of all final goods and services produced within a country in a given year.

Demand for Production Can be Divided Into

Consumer spending (consumption), business spending (investment), government spending on goods and services, spending on net exports

Consumption Expenditure

67.2%

Net Export Expenditure

3.1%

Government Expenditure

18.5%

Investment Expenditure

17.4%

Trade Balance

The gap between exports and imports (X - M)

Trade Surplus

When a country’s exports are larger than its imports; calculated as exports – imports

Trade Deficit

When a country’s imports exceed exports; calculated as imports –
exports.

GDP is Measured As

Consumption + Investment + Government + Trade balance (X - M)

Durable

Long-lasting good like a car or a refrigerator

Nondurable Goods

Short-lived good like food and clothing

Services

Product which is intangible (in contrast to goods) such as entertainment, healthcare, or education

Structures

Building used as residence, factory, office building, retail store, or for other purposes.

Change in Inventories

Good that has been produced, but not yet been sold

Every Market Transaction

Must have both a buyer and a seller

Structures

9.1%

Durable Goods

16.7%

Nondurable Goods

13.4%

Services

60.8%

Final Goods and Services

Output used directly for consumption, investment, government, and trade purposes. Goods at the furthest stage of production at the end of the year.

Intermediate Goods

Output provided to other businesses at the intermediate stage of production, not for final users. Excluded from GDP calculation.

Double Counting

Output that is counted more than once as it travels through the stages of production.

Gross National Product (GNP)

Includes what is produced domestically and what
is produced by domestic labor and business abroad in a year

Net National Product (NNP)

GNP minus the value of depreciation

Deprication

The process by which capital ages over time and therefore loses its
value

National Income

Includes all income earned: wages, profits, rent, and profit income

Gross National Income (GNI)

Includes the value of all goods and services
produced by people from a country—whether in the country or not

Nominal Value

The economic statistic actually announced at that time; not adjusted for inflation

Real Value

An economic statistic after it has been adjusted for
inflation

GDP Deflator

A price index measuring the average prices of all goods and services included in the economy

Real GDP

(Nominal GDP)/(Price Index/100)

Recession

A significant decline in national output/GDP

Depression

An especially lengthy and deep decline in output

Peak

During the business cycle, the highest point of output before a recession begins

Trough

During the business cycle, the lowest point of output in a recession,
before a recovery begins

Business Cycle

The economy's relatively short-term movement in and out of
recession

Exchange Rate

The value or price of one currency in terms of another currency

GDP Per Capita

The GDP divided by the population

Standard of Living

All elements that affect people’s happiness and well-being, whether they are bought and sold in the market or not

GDP Does Not Include

Leisure time, actual levels of environmental cleanliness, health and learning, production that is not exchanged in the market, the level of inequality in society, and what technology and products are available.