The Bird’s-Eye View of the Economy

Vocabulary flashcards covering key macroeconomic concepts from the lecture notes.

Macroeconomics

The study of the economy as a whole, including broad measures like total output, unemployment, and inflation, and the effects of policy on the entire economy.

Microeconomics

The study of individual markets and decisions of households and firms; macroeconomics uses aggregation to study economy-wide totals.

Aggregation

Adding up individual economic variables to obtain economy-wide totals, providing a bird’s-eye view of the economy.

Positive Analysis

Examines the economic consequences of a policy or event without judging whether those consequences are desirable.

Normative Analysis

Asks whether a policy should be used, and includes values and judgments in its conclusions.

Monetary Policy

Policy that determines the nation’s money supply, controlled by the central bank (Fed in the U.S.), which can inject or remove money.

Fiscal Policy

Government decisions about expenditures and revenues (taxes), influencing the budget and economic activity.

Structural Policy

Policies aimed at changing the underlying structure or institutions of the economy.

Deficit

When government spending exceeds tax revenue.

Surplus

When government spending is less than tax revenue.

Output

The total value of goods and services produced in an economy; a measure of economic activity.

Economic Growth

A process of sustained increases in the quantity and quality of goods and services the economy can produce.

Output per Worker

Output divided by the number of workers; a measure of productivity.

Productivity

The rate at which inputs are transformed into outputs, often measured as output per hour or per worker.

Unemployment Rate

The percent of the labor force that is unemployed; tends to rise during recessions.

Inflation Rate

The rate at which the general level of prices is rising; varies over time and across countries.

Exports

Goods and services produced domestically sold to other countries.

Imports

Goods and services produced abroad purchased domestically.

Trade Deficit

Export value is less than import value; negative balance of trade.

Trade Surplus

Export value exceeds import value; positive balance of trade.

Exports and Imports as Share of GDP

Exports and imports measured as a percentage of a country’s GDP to gauge openness.

International Interdependence

The increasing economic linkages between nations through trade and finance; shown by cross-country trade data.

Recessions and Expansions

The business cycle: periods of shrinking (recessions) and growing (expansions) economic activity.