MacroEconomics Unit 1

Economy

The structure of economic activity in a community, region, country, group of countries, or around the world.

Gross Domestic Product (GDP)

The market value of all final goods and services produced in a nation during a particular period, usually a year.

Gross World Product

The market value of all final goods and services produced in the world during a given period, usually a year.

Flow Variable

A measure of something per period, such as spending per week.

Stock Variable

The measure of something at a point in time, such as the amount of money you have with you right now.

Mercantilism

The incorrect theory that a nation’s economic objective should be to accumulate precious metals in the public treasury; this theory prompted trade barriers to cut imports, but other countries retaliated reducing trade and the gains from specialization.

Expansion

A period during which the economy grows as reflected by rising output, employment, income, and other aggregate measures.

Contraction

A period during which the economy declines as reflected by falling output, employment, income, and other aggregate measures.

Depression

A severe and prolonged reduction in economic activity, such as the one in the 1950s.

Recession

A period of decline in economic activity lasting more than a few months, as reflected by falling output, employment, income, and other aggregate measures.

Inflation

An increase in the economy’s average price level.

Leading Economic Indicators

Variables that predict or lead to a recession or recovery; Examples include consumer confidence, stock market prices, business investment, and big-ticket purchases such as cars or homes.

Coincident Economic Indicators

Variables that reflect peaks and troughs in economic activity as they occur; examples include employment, personal income, and industrial production.

Lagging Economic Indicators

Variables that follow or trail changes in overall economic activity; examples include interest rates and the average duration of unemployment.

Aggregate Output

A composite measure of all final goods and services produced in an economy during a given period; real GDP.

Aggregate Demand

The relationship between the economy’s price level and aggregate output demanded with other things constant.

Price Level

A composite measure reflecting the prices of all goods and services in the economy relative to prices in the base year.

Aggregate Demand Curve

A curve representing the relationship between the economy’s price level and real GDP demanded her period with otc.

Aggregate Supply Curve

A curve representing the relationship between the economy’s price level and real GDP supplied per period, with otc.

Higher Level of GDP

1. More goods and services in the economy 2. More people probably employed

Federal Budget

A plan where the government outlays and revenues of a specific period, usually a year.

Federal Budget Deficit

The flow variable that measures the amount by which federal government outlays exceed federal government revenues in a particular period, usually a year.

Demand Side Economics

Macroeconomics policy that focuses on shifting the aggregated demand curve as a way of promoting full employment and price stability.

Fiscal Policies

Government spending- president and congress

Monetary policies

Should be used to influence the interest rates in a way that provides full employment. Gerome Powell, FED regulates!

Supply Side Economics

Macroeconomic policy that focuses on a rightward shift of the aggregate supply curve through tax cuts or other changes that increase production incentives.

President Reagan

Initiated tax cuts to stimulate economy, 23% over three years. Before the tax cuts went into effect, another recession 1981-82; then, the longest peacetime expansion of the economy on record to that date took place. Federal deficit persisted.

President Bush

1986-1996, The S&L Crisis (savings and loan), costs to taxpayers $123 billion, recession in 1990-91 (8 month) “Jobless Recovery”

President Clinton

Raised taxes, republican Congress cut federal spending, 1998 Federal Budget Surplus, tech boom/bull market (wall street).