Economics Midterm Waaaa

Microeconomics

Examines the functioning of individual industries and the behavior of individual decision-making units

Macroeconomics

Focuses on the determinates of total national output

Aggregate Behavior

Behavior of all households as well as the behavior of all firms

Recessions

Periods during which aggregate output declines

Aggregate Output

The total quantity of goods and services produced in an economy in a given period

Transfer Payments

Cash payments made by the government to people who do not supply goods, services, or labor in exchange for these payments (social security benefits, veterens’ benefits, and welfare payments)

Fiscal Policy

Government policies concerning taxes and spending

Monetary Policy

The tools used by the Federal Reserve to control short term interst rates

Fine-tuning

Phrase used by Walter Heller to refer to the government’s role in regulating inflation and unemployment

Stagflation

A situation of both high inflation and high unemployment

Circular Flow Diagram

Shows the flow of income received and payments made by the four groups in the economy: households, firms, the government, and the rest of the world

Gross Domestic Product (GDP)

The total market value of all final goods and services produced within a given period by factors of production located within a country

-Exports are added and imports are subtracted

-Largest expenditure component is consumption

Gross National Product (GNP)

The total market value all final goods and services produced within a given period of factors of production owned by a country’s citizens, regardless of where the output is produced

Expenditure Approach

A method of computing GDP that measures the total amount spent on all final goods and services during a given period

Income Approach

A method of computing GDP that measures the income, wages, rents, interest, and profits received by all factors of production in producing final goods and services

Net National Product (NNP)

Gross national product minus depreciation; a nation’s total product minus what Is required to maintain the value of its capital stock

Gross National Income (GNI)

GNP converted to dollars using an average of currency exchange rates over several years adjusted for rates of inflation

How is one considered employed?

Any person 16 years old or older

(1) who works for pay, either for someone else or in his or her own business for 1 or more hours per week

(2) who works without pay for 15 or more hours per week in a family enterprise

(3) who has a job but has been temporarily absent with or without pay

How is one considered unemployed?

A person 16 years old or older who is not working, is available for work, and has made specific efforts to find work during the previous 4 weeks

How is one considered not in the labor force?

A person who is not looking for work because he or she does not want a job or has given up looking

Labor Force

Number of people emplyed + number of people unemployed

Unemployment Rate

Number of people unemployed / Number of people employed + number of people unemployed (labor force) x 100

Labor Force Participation Rate

The ratio of the labor force to the total population 16 years old or older

Frictional Unemployment

The portion of unemployment that is as a result of the normal turnover in the labor market; used to denote short-run job/ skill-matching problems

Structural Unemployment

The portion of unemployment that is as a result of changes in the structure of the economy that result in a significant loss of jobs in certain industries (obsolete)

Cyclical Unemployment

Unemployment that is above frictional plus structural unemployment

Consumer Price Index (CPI)

A price index computed each month by the Bureau of Labor Statistics using a bundle that is meant to represent the “market basket” purchased monthly by the typical urban consumer

Producer Price Index (PPI)

Measures of prices that producers receive for products at various Stages in the production process

Bretton Woods System

-Countries were to maintain fixed exchange rates with one another

- ountries experiencing a “fundamental disequilibrium” in their balance of payments were allowed to change their exchange rates

-New Hampshire, 1944 (During WWII, abandoned in 1971)

Pax Britannica

-1870 - 1914

-coherent, produced desried results/stability

Assumptions

-Wages can be lowered (prices are flexible)

-Mechanism is automatic

Downturn in Business Cycle

Wages ↓ Investment ↓

Upturn in Business Cycle

Wages ↑ Investment ↑

John Maynard Keynes

Showed that government policy could be used to change aggregate output and prevent recession by stabilizing the economy

-General Theory of Employment, Interest, and Money (1936)

-Believed in activist federal government

-Believed monetary and fiscal policies should be used to manage the macroeconomy

-Argued resisting wage cuts would lead to higher unemplyment under the gold standard

Current U.S GDP…

About 26 trillion dollars

Bureau of Labor Statistics

Announces the value of the unemployment rate for the previous month (first friday of every month)

Bureau of Economic Analysis

Convey data from the performance of the economy (national income and product accounts) and provide a concepual framework

National Bureau of Economic Research

Analyzes thousands of items in data, collected by both government agencies and private companies. Also dates turning points of the business cycle

Jean-Baptiste Say (1767 - 1832)

-A Treatise on Political Economy (1803) argued that the act of producing a commodity immedietley creates demand for another

-Supply creates its own demand (Laissez Faire)

Keynesian Productivity Deal

-Goal was to tie the rate of growth of wages to the rate of growth pf productivity
-Unlike Laissez Faire, involves government spending and government-led aggregate demand to create jobs and increase purchasing power

-Decrease taxes, increase government spending

As of February, 2026, nonfarm payroll employment edged down by ___ with the expectation that employment would ___. The unemployment rate changed little at ___%

92,000 , Increase, 4.4%

Household Survery

Measures labor force status, including unemployment, by demographic characteristics (entire civilian noninstitutional population)

-Excludes military and farm workers, prisoners

Establishment Survey

Measures nonfarm employment, hours, and earnings by industry

As of February, 2026, the number of people not in the labor force is…

About 6.0 million

In Matthew Taylor’s article, UN secretary Antonio Guterres, states…

The world’s accounting systems should place true value on the environment, the global economy must move past GDP to avoid planetary disaster

GDP increased at at annual rate of what percent in the fourth quarter of 2025?

1.4%

The general guide for noninflationary wage behavior is that…

The rate of increase in wage rates in each industry be equal to the trend rate of over-all productivity increase

Four modifications to reconcile price behavior with equity and efficiency:

(1) Wage rate increases would exceed the general guide rate in an industry

(2) Wage rate increases would fall short of the general guide rate in an industry

(3) Prices would rise more rapidly, or fall more slowly, than indicated by the general guide rate in an industry

(4) Prices would rise more slowly, or fall more rapidly, than indicated by the general guide on an industry