Studied by 0 peopleMacroeconomics:
The study of the performance of the national economy.The business cycle refers to the fluctuations in real GDP. Every business cycle has two phases:an expansion and a recession.
Recessions:
phases of persistent decline in production
Expansions:
phases of persistent increase in production
Business Cycle Peak:
turning point between expansion and recession
Business Cycle Trough:
Turning point between recession and expansion A business cycle episode follows this sequence: expansion -> peak -> recession -> trough
Inflation:
increases in the overall level of prices. When the price level rises we have inflation.
Deflation:
decreases in the overall level of prices. When the price level falls we have deflation.
Nominal GDP:
The market value of all the final goods and services produced within a country ina given time period.
Market value:
The price for which a good or service is sold in a market.
Final goods and services:
A good or service that is purchased by its final user.
Intermediate goods and services:
Items that are produced by one firm, bought by another firm,and used as a component of a final good or service.
Expenditure Approach
to measure GDP: Measure total expenditures on final goods and services produced within a country in a given time period.
Income Approach
to measure GDP: Measure total income received by factors of production operating within a country in a given time period.
Personal Consumption Expenditures (C):
Spending by domestic households on consumer goods and services.
Gross Private Domestic Investment (I):
Spending by domestic firms on new capital goods and additions to inventories. It also includes expenditure on new homes by households.
Capital goods:
Goods that are used to produce other goods and services, but are not completely used up in the production of these other goods and services.
Additions to inventories:
Goods that are produced but are not sold to their final user inside ofthe period we are measuring GDP.
Government Expenditure on Goods and Services (G):
Purchases of goods and services by the domestic federal, state and local governments.
Transfer Payments:
Cash transfers from governments to households and firms such as socialsecurity benefits, unemployment compensation, and subsidies.
Net Exports of Goods and Services (X-M):
The value of exports minus the value of imports
Exports (X):
Sales of goods and services by the domestic economy to the rest of the world.
Imports (M):
Purchases of goods and services by the domestic economy from the rest of theworld.
Net Exports =
Exports - Imports = X-M, When X-M is negative, it is called a trade deficit. When X-M is positive, it is called a trade surplus.
GDP =
C + I + G + X -M
Stock of Capital Goods (or Capital Stock):
The total amount of capital goods currently operating in the economy
Depreciation:
The decrease in the existing stock of capital goods that results from wear and tear and obsolescence.
Net Private Domestic Investment =
Gross Private Domestic Investment minus Depreciation.(note - the capital stock will increase if Net Private Domestic Investment is positive.)
Net Domestic Product =
GDP minus Depreciation, Goods and services are produced using factors of production: (labor, capital equipment, land,entrepreneurship)
Compensation of employees:
Payment for labor services.
Corporate profits:
Profits earned by corporations.
Proprietor's income:
Income of the non-incorporated self-employed.
Rental income:
Payment for the use of land and other rented resources.
Real Gross Domestic Product (real GDP)
measures the market value of production in all yearsusing a fixed set of market values from some common year, called the base year.
Household Production:
Goods and services that are produced for personal use.
Underground Economy:
Market transactions for goods and services where the market isn'tobserved.
Standard of living:
a comprehensive state of economic well being, including things such as income levels, quality of housing and food, medical care, educational opportunities, transportation, communications, and other measures.
real GDP per person:
real GDP divided by the population of the nation.
CPI for year Z =
(Total cost of CPI basket in the prices of year Z / Total cost of CPI basket in theprices of base year) x 100
GDP Deflator for year Z =
(Nominal GDP for year Z / Real GDP for year Z) x 100
Inflation Rate for year Z =
[(Price level for year Z - Price Level for year before year Z)/(PriceLevel for year before year Z)] x 100
Real Wage for year Z =
(Nominal wage for year Z / Price Level for year Z) x 100
End Of Midterm One
End Of Midterm One
Unemployment Rate:
The unemployment rate is the number of people who can't find a job,expressed as a percentage of all those who either have a job or are actively looking for one.
Current Population Survey:
A monthly survey of 60,000 households conducted by the U.S.Census Bureau.
Working-Age Population:
The total number of people aged 16 years and over who are not institutionalized.
Employed:
To be considered employed, you must have either a full or part-time job.
Unemployed:
To be considered unemployed, you must fall into one of three categories:1) You have made specific efforts to find a job within the previous four weeks.2) You are waiting to be called back to a job from which you have been laid off.3) You are waiting to start a new job within 30 days.
Not in the Labor Force:
Those who are in the working-age population but are not employed orunemployed.
Labor force:
The sum of the number of employed and unemployed persons.
Unemployment Rate:
(Number of Unemployed / Labor Force) x 100
Marginally Attached Workers:
A person who currently is not working and has not looked forwork in the previous four weeks, but has indicated they want and are available for work andhave looked for work sometime in the recent past.
Discouraged Worker:
a marginally attached worker who has stopped looking for a job because of repeated failures to find one.
Economic Part-Time Workers:
Workers who hold part-time jobs but wish to have full-time jobs.
Frictional Unemployment:
Unemployment that arises from "normal labor market turnover."This includes unemployment occurring when people enter or re-enter the labor force, because of the ongoing creation and destruction of jobs, and from people voluntarily leaving jobs to search for other ones.
Structural Unemployment:
Unemployment that exists when changes in the economy changethe skills needed to perform jobs or change the location of jobs.
Cyclical Unemployment.
Fluctuations in unemployment caused by the business cycle.
Natural Unemployment Rate:
The unemployment rate that exists when all unemployment iseither frictional unemployment or structural unemployment.
Full Employment:
The aggregate number of hours of work done by workers in an economywhen the unemployment rate equals the natural unemployment rate.
Demand for Labor:
The relationship between the aggregate quantity of labor demanded by firms and the real wage rate. Firms will hire more hours of labor if the real wage rate declines.
Supply of Labor:
The relationship between the aggregate quantity of labor supplied by worker and the real wage rate. Workers will supply more hours of labor if the real wage rate increases.
Labor Market Equilibrium:
Occurs when the amount of labor demanded is equal to the amountof labor supplied.
Potential Real GDP:
The quantity of Real GDP produced at full employment.The output gap shows the distance between real GDP and Potential real GDP
Output Gap =
Real GDP - Potential Real GDP
Labor Productivity:
The quantity of real GDP produced by an hour of labor.
The Stock of Capital Goods:
How many and what type of capital goods are in the economy
Human Capital:
The knowledge and skill that people obtain from education, on-the-jobtraining, and work experience. Growth in Labor Productivity comes from:• Growth in the Stock of Capital Goods• Growth in Human Capital• Technological Advances: Both human capital and capital goods are influenced by technological advances.
Growth Rate of Real GDP:
The annual percentage growth rate of Real GDP
Economic Growth:
The growth of potential real GDP
𝐆𝐫𝐨𝐰𝐭𝐡 𝐑𝐚𝐭𝐞 𝐨𝐟 𝐑𝐞𝐚𝐥 𝐆𝐃𝐏 𝐏𝐞𝐫 𝐏𝐞𝐫𝐬𝐨𝐧 𝐢𝐧 𝐲𝐞𝐚𝐫 𝐙 =
(Real GDP per person in year Z - Real GDP per person in previous year/ Real GDP per person in previous year) (100)
Rule of 70:
Tells us that the number of years it takes any variable to double is approximately 70 divided by the annual percentage growth rate of that variable.
Money:
Any commodity or token that is a Medium of Exchange, meaning it is generally acceptable as a means of payment.
Means of Payment:
A method of settling a debt.
Barter:
An economic system in which goods and services must be exchanged directly for other goods and services.
Double Coincidence of Wants:
For an exchange of goods or services to occur in a barter system,both sides must want the good or service that the other is offering.
Unit of Account:
The agreed upon measure for stating the prices of goods and services.
Store of value:
Something that can be held and exchanged later for goods and services.
Monetary Aggregates:
Official measures of the amount of money in the United States.
M2:
The primary monetary aggregate in use today
Liquid Assets:
Assets that are easily convertible into a means of payment without loss in value.
M2 consists of:
Currency owned by individuals and businesses, Checking Deposits, Other LiquidDeposits, Time Deposits, and Deposits with Money Market Mutual Funds
Depository Institution:
A financial firm that takes deposits from households and firms and makes loans to other households and firms. There are different types of depository institutions,including, Commercial banks, Savings and Loan Associations, Savings Banks, Credit Unions,and Money Market Mutual Funds.
Depository Institutions own different types of assets, including:
1) Reserves: Currency in the bank's vaults and deposits held with the Federal Reserve.2) Other Cash Assets: Primarily loans to other banks. These earn interest at an interestrate known as the Federal Funds Rate3) Securities: This includes very low risk investments in U.S. government Treasury bills andcorporate bills, as well as higher risk investments in U.S. government Treasury andcorporate bonds and mortgage-backed securities.4) Loans: Loans made to businesses and individuals.
central bank
1) Serves as a bank for depository institutions.2) Regulates depository institutions.3) Conducts monetary policy: adjusting the amount of money in the economy and influencing interest rates
Federal Reserve System:
The central bank of the United StatesThe Federal Reserve's primary goals in conducting monetary policy are to keep inflation lowand maintain full employment.
Federal Reserve System has three components:
Board of Governors, Regional FederalReserve Banks, Federal Open Market Committee or "FOMC"
The Board of Governors
has seven members, and each member is appointed by the Presidentand confirmed by the Senate for a 14 year term. One of the Board members serves as the Chairof the Board of Governors.
Jerome Powell:
The current chair of the Board of Governors
Regional Federal Reserve Banks:
There are 12 regional Federal Reserve Banks that provideservices to local depository institutions.
Federal Open Market Committee (FOMC):
The component of the Federal Reserve System thatis in charge of conducting monetary policy. There are 12 voting members of the FOMC,including the seven members of the Board of Governors, the president of the Federal ReserveBank of New York, and four presidents of the other 11 regional Federal Reserve Banks on arotating basis.
Open Market Operation:
The purchase or sale of financial assets (usually U.S. GovernmentTreasury Bills and Bonds) in the open market.
Open-Market Purchase
increases deposits in depository institutions and thus the quantityof money in the economy. will increase the level of bank reserves,
Open-Market Sale
decreases deposits in depository institutions and thus the quantity of money in the economy. decreases the level of bank reserves.
If a bank has reserves above its Desired Reserves,
we say the bank has Unplanned Reserves.
Unplanned Reserves
can be used by banks to make additional loans.
Monetary Base:
The sum of currency and bank's deposits of reserves with the Federal Reserve.
Money Multiplier:
gives the multiple for the change in the quantity of money that results froma change in the monetary base.
Money Multiplier =
change in quantity of money / change in monetary base)
Money Supply =
The amount of money in the economy at a particular point in time. Also called the Nominal Money Supply
Real Money Supply:
the money supply divided by the price level.
Wealth:
the sum of the values of the assets that people own.
Note
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