Macro Test 1

Consumer Spending

Household spending on goods and services

Government Purchases of Goods and Services

total expenditures on goods and services by federal, state, and local governments

Investment Spending

spending on productive capital (machinery/construction of buildings) and on changes to inventories

Purchased Goods

Imports

Sold goods

Exports

What is GDP?

the total vaule of all final goods and services produced in an economy during a given period

Intermediate Goods

if the purchaser (another firm) is not the final user

If you buy a car from a dealer is it a final good?

YES

If an automboile manufacturer buys steel from a steel foundry is it a final good?

NO, it is an intermediate good

What are the three ways to calculate GDP?

1.) Add up the total vaule of all final goods and services produced.

2.) Add up all aggregate spending on domestically produced final goods and services.

3.) Add up the total factor income earned by households from firms in the economy

What is Aggregate Spending?

the sum of consumer spending, investment spending, government purchases of goods and services, and exports minus imports

What is the GDP Equation?

C+I+G+X-IM

In the GDP Equation what does c represent?

consumer spending

In the GDP Equation what does I represent?

investment spending

In the GDP Equation what does G represent?

government purchases of goods and services

In the GDP Equation what does X represent?

exports

In the GDP Equation what does IM represent?

imports

Is investment spending in our out of GDP?

In

Is capital spending in our out of GDP?

In

Is imports in our out of GDP?

Out

Are final assests (stocks/bounds) in our out of GDP?

Out

Is domestically produced final goods and services (capital goods, new construction of structures and changes to inventories) in our out of GDP?

In

Is the purchase of used goods in our out of GDP?

Out (double counting)

Is the purchase of intermediate goods and services in our out of GDP?

Out

What does GDP tell us?

-size of economy

What is Real GDP?

the total vaule of the final goods and services produced in the economy during a given year, calculated using the prices of a selected base year

Nominal GDP

the vaule of all final goods and services produced in the economy during a given year , calculated using the prices current in the year in which the output is produced

What is the aggregate price level?

a measure of the overall level of prices in the economy

What is the Labor Force Participation Rate?

the percentage of adults (16+) in the labor force

What are discourged workers?

those who have given up looking for a job because there are no jobs available

What are marginally attached workers?

those who looked for work in the past (looked in the past 12 monts but NOT in the past 4 weeks) but are not currently looking for work

Who are the underemployed?

those who would like to work full time but are currently working part time

What is Frictional Unemployment?

Unemployment due to the time workers spent in job search.

What is structural unemployment?

more people are seeking jobs in a particular labor market than there are jobs available at the current wage rate, even when the economy is at the peak of the business cycle

What are efficiency wages?

wages that employers set above the equilibrium wage rate as an incentive for their workers to perform better

What is natural unemployment?

frictional unemployment + structural unemployment

What is cyclical unemploymnet?

the deviation of the actual rate of unemployment from the natural rate

What is real wage?

the wage rate divided by the price level

What is real income?

income divided by the price level

What is interest rate?

the return a lender receives for allowing borrowers the use of their savings for one year, calculated as a percentage of the amount borrowed

Nominal interest rate?

the interest rate expressed in dollar terms

Real Interest Rate?

the nominal interest rate minus the rate of inflation

Disinflation

bringing the inflation rate down

Monetary Policy

uses changes in the quantity of money to alter interest rates, which in turn affect the level of overall spending

Fiscal Policy

Uses changes in taxes and government spending to affect overall spending

Recessions (contractions)

periods of economic downturn when output and employment are falling

Expansions (recoveries)

periods of economic upturn when output and employment are rising

Business cycle

the short-run alternation between recessions and expansions

Price Stability

When the overall level of prices changes slowly

Trade Deficit

the value of goods and services bought from foreigners is more than the value of goods and services sold to them

Trade Surplus

the value or goods and services bought from foreigners is less than the value of the goods and services sold to them