Macroeconomics Final

Aggregate Expenditure Equation

AE= C+I+G+(X-M) for mainstream macroeconomics.

Included in GDP

Final goods and services, domestic production, current production, market transactions, investment spending, government spending, net exports.

Excluded from GDP

Intermediate goods, non-market transactions, illegal activities, transfer payments, used goods, financial transactions, foreign production.

Cyclical Unemployment

Unemployment due to economic downturns, e.g. a retail store closing.

Structural Unemployment

Unemployment due to changes in the economy, e.g. job loss from automation.

Seasonal Unemployment

Unemployment due to seasonal factors, e.g. lifeguards working in summer.

Business Cycle

Recurrent swings in real GDP over time.

Multiplier Effect

Increases total economic impact of an initial spending change by triggering additional spending.

Contractionary Fiscal Policy

Government reduces spending or increases taxes to slow economic growth.

Progressive Income Tax System

A built-in stabilizer to automatically adjust tax burdens based on income.

Real Interest Rate

Nominal Interest Rate - Inflation Rate.

Restrictive Monetary Policy

Measures taken by the Fed to control inflation by raising interest rates.

Federal Open Market Committee (FOMC)

The group that decides monetary policy in the US.

Short-Run Aggregate Supply Curve

Used to understand business cycles and macroeconomic policy.

Nominal GDP

Measures the value of goods and services produced in an economy at current prices.

Real GDP

Measures the value of all goods and services produced in an economy, adjusted for inflation.

GDP Price Index

Nominal GDP divided by Real GDP, indicating price level changes.

Expected Rate of Return (ERR)

(Net revenue / Cost of investment) * 100.

Marginal Propensity to Save (MPS)

Change in saving divided by change in income.

Expansionary Fiscal Policy

Policy involving increased government spending or tax cuts to stimulate the economy.

Contractionary Monetary Policy

Policy aimed at decreasing the money supply to control inflation.

Aggregate Demand (AD)

Total demand for all goods and services in the economy at different price levels.

Exchange Rate

Value of one currency compared to another.

Balance of Payments

Record of all economic transactions between residents of a country and the rest of the world.

Consumption Function

Relationship reflecting how consumer spending is influenced by disposable income.

Investment Spending

Expenditures on capital goods that will be used for future production.