Studied by 2 people
what is CPI
Average price that consumers pay for certain items.
Macroeconomics
the study of the economy as a whole, including topics such as inflation, unemployment, and economic growth
What is the issue with macroeconomics?
inflation, unemployment, economic group, interest rate, GDP
what is the circular flow of goods. services, and payments in the macroeconomy?
the circular flow is when the household buys goods or services from the business and the business pays the household for labor. This creates a cycle of economic activity.
what are the major sectors of macroeconomy?
households, firms (businesses), government, and the external sector (rest of the world)
economic growth
The expansion of the economy's production possibilities: an outward shifting PFP (measured by the increase of real GDP)
Potential GDP
The predicted GDP
The value of production when all the economy's labor, capital, land, and entrepreneurial ability are fully employed. Best case scenario
Business Cycle
The real GDP fluctuates above and below the Potential GDP
How many successive quarters to define as a recession period?
Two
Recession
Real GDP decreases
expansion
Real GDP increases
What is GDP?
the market value of all final goods and services produced within a country in a given period of time
What is Market value?
Market pricing
What is a final good?
Consumed rather than used for the production of another good. Ex. Car
How do you measure GDP?
Total spending expenditure or total income
what is the equation to calculate total GDP?
Y=C+I+G+X-M
c: consumption of good by consumer
I: Investment from business
G: Government expenditures
X: export
M: inports
growth rate
Percentage change in the quantity of goods and services produced from one year to the next.
((GDP this year - GDP last year) ÷ GDP Last year) • 100
Reasons why we measure Economic growth
Economic welfare, International comparisons across country, business cycle forecast
why can't we compare GDP across countries?
different currency (different price for the same goods/services)
How do you calculate real GDP?
(quantity x price) add up all the GDPs for final per year
What is the 2 purpose of estimating Real GDP?
Compare the standard of living over time, compare the standard of living among countries.
What is a price index?
a measure of the price of a specified collections of
How to calculate price index
(cost of market basket in a given year)/ (cost of market basket in base year) x 100
Nominal GDP
The market value of all final goods and services produced in a year (includes inflation) dollar has to stay the same by using current prices
Deflate GDP
To deflate the total cost to see the Real GDP which is how much a company has grown over a time period
What is CPI used for
measure of inflation
Demand-push
When demand of the good or service goes up, the price goes up (inflation)
cost push
when the cost of production is high so the cost of the object increases (inflation)
Unexpected inflation ...
Makes consumers buy less stuff, therefore economy does not grow. this decreases their purchasing power and their living standards.
hurts people on a fixed income, but helps people who borrowed money
Labor force is...
sum of employed and unemployed
what is being unemployed?
Person who is interested and looking for a job
Frictional unemployment
Workers leaving their jobs for another job
Structural unemployment
not qualified for job, therefore fired/laid off
Cyclical Unemployment
Not enough jobs for the people who are unemployed (looking for a job)
Potential GDP is produced at....
full employment
