Unit 4 - Macro Economics Stephens

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unit 4 study guide

Economics

43 Terms

1

aggregate

total of all (sum of all)

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2

expansions

increased economic growth

(rising up on the business cycle)

(where we want to be)

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3

peak

economic growth levels off

(tip of the business cycle)

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4

contraction

decreased economic growth

(going down on the business cycle)

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5

trough

recovery period

(bottom of the business cycle)

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6

recessions

6 month decline in real GDP

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7

inflation

increasing prices for goods and services

(normal in a growing economy)

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8

US economic goals

1 - growth

2 - low unemployment rates

3 - stable prices

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9

Federal Reserve Act

created the federal reserve bank

(1913)

(FED)

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10

federal reserve bank

  • board of governors

    • 7 individuals nominated by President and approved by congress

  • district banks

    • 12 banks, 12 districts

    • we live in district 7

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11

economic indicators

  • GDP

  • unemployment rate

  • consumer price index (CPI)

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12

GDP

measures the total value of all domestically produced goods/services

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13

GDP equation

GDP=C+I+G+NX

c - consumer spending

I - investment (business)

G - government

NX - net exports (exports-imports)

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14

real numbers

numbers adjusted for inflation

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15

nominal numbers

numbers not adjusted for inflation

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16

base year

equal to 1 or 100

used for chained dollars

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17

chained dollars

$ chained into a base year

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18

labor force

population 16 and older

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19

unemployed population

16 or older actively seeking however unable to find employment

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20

unemployment rate equation

unemployment rate=unemployed people/labor force

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21

unemployment rate uses

  • used as a major indicator of the business cycle

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22

low unemployment rate

lower unemployment suggests expansions

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23

high employment rate

rising unemployment suggests contractions

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24

frictional unemployment

normal, people between jobs

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25

structural unemployment

normal, unemployed because of market changes

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26

seasonal unemployment

normal, expected due to seasonal changes

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27

cyclical unemployment

caused by a downward movement in the business cycle, during a recession

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28

natural unemployment rate equation

natural unemployment=frictional unemployment + structural unemployment

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29

unemployment measuring

  • the Bureau of Labor Statistics calculates this every month, gets media coverage

  • unemployment in April 2023 was 3.4% (relatively low)

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30

deflation

decrease in prices for goods and services

  • usually caused by overproduction or decreasing demand

  • not good long term for an economy

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31

purchasing power

the ability to purchase goods and services with your $

  • inflation causes decrease

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32

groups harmed by inflation

  • fixed incomes

  • savers

  • lenders

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33

groups helped by inflation

  • some investors

  • borrowers

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34

demand pull inflation

will happen when aggregate demand increases

  • increase in money supply

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35

cost push inflation

will happen when productive resources increase in price

  • productive resources (land, labor, capital)

  • inflation causes inflation

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36

hyperinflation

excessive and increasing out of control, typically defined as 50% increase each month

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37

consumer price index (CPI)

standard measurement of inflation

  • calculated by the Bureau of Labor Statistics

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38

market basket

survey of prices of goods and services for atypical urban consumer (1982-84)

  • products everyone would use (milk, eggs, gas)

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39

how countries control inflation

decrease the money supply, not popular for consumers/workers

  • monetary policy, fiscal policy

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40

monetary policy

decrease money supply (Federal Reserve Bank)

  • used to control inflation

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41

fiscal policy

increasing taxes

  • used to control inflation

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42

how countries deal with recessions

add money into circulation

  • lower interest rates

    • rates which banks loan money to the public

  • open market operations

    • buy bonds

  • lower reserve ratio

    • lowers money banks are required to hold

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43

business cycle

expansion, peak, contraction, trough

<p>expansion, peak, contraction, trough</p>
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