Macroeconomics Review

Vocabulary flashcards for Macroeconomics review.

GDP

Calculates the total economic value of production in a given year inside a country's borders.

GDP per capita

GDP divided by the population.

Depreciation

The wearing out of the existing capital stock.

Gross Investment

Investment before excluding depreciation.

Net Investment =

Investment (gross) - depreciation.

Unemployment Rate

Unemployed / (Employed + Unemployed)

Discouraged Workers

Unemployed individuals who have given up looking for work.

Labor Force

Employed + Unemployed.

Labor Force Participation Rate

Labor Force / Total Population Eligible to Work.

Natural Rate of Unemployment

Structural + Frictional unemployment.

Structural Unemployment

Individuals whose talents are outdated.

Frictional Unemployment

Individuals who are resigned, newly graduated, etc.

Cyclical Unemployment

Actual unemployment rate - Natural rate of unemployment.

Inflation

Percentage change in price levels for a given two years.

CPI (Consumer Price Index)

Used to calculate price level.

CPI for year x

(Total spending of the basket on year x / total spending of the basket on base year) * 100

Inflation from year x1 to year x2

(CPIx2 - CPIx1) / CPIx1

Real Variables

Inflation adjusted values.

Fisher Equation

Nominal interest rate - inflation.

Nominal GDP

The monetary value of goods produced in a given year.

Real GDP

The value of products produced in a year but with base year prices.

Deflator

NGDP/RGDP * 100.

Sticky Wages or Prices

Constant prices or wages in the short run.

Automatic Stabilizers

Built-in system features that limit the extent of recessions and expansions.

Spending Multiplier

1 / (1 - MPC)

Tax Multiplier

• (spending multiplier - 1) or -MPC/MPS

Fiscal Policy

Government changes AD based on spending and taxes.

Demand-Pull Inflation

Inflation caused by an increase in AD.

Cost-Push Inflation

Inflation caused by a decrease in SRAS.

AD (Aggregate Demand)

I + C + G + NX

MPS

Marginal propensity to save.

MPC

Marginal propensity to consume (1-MPS).

Interest Rates

Inversely related to bond prices.

Discount Rate

Interest rate of banks borrowing from the FED.

Fed Funds Rate

Interest rate between banks borrowing and lending.

OMO (Open Market Operations)

FED buying or selling bonds.

Monetary Base (M0)

Cash held by the public + cash held by banks.

Fiat Money

Money backed by the Fed or government.

Commodity Money

Money backed by gold or silver.

Money Multiplier

1 / rr

Phillips Curve

Shows the relation between inflation and unemployment.

Current Account (CA)

Exports - Imports.

Financial Account (FA)

Financial inflows - Financial outflows.

Exchange Rates

Price of a currency in terms of another currency.