Macroeconomics Unit 2 Review

In U.S. we have a long run trend of

Economic growth

Phase of business cycle when real GDP is at minimum

Troph

Phase of business cycle when real GDP is in decline

Recession

Recession

Supply is falling

Included in labor force

Adult people that have a job, want one, or looking for one. (Unemployed+employed)

Unemployment rate calculated is

# unemployed ÷ labor force × 100

What compromises the natural rate of unemployment ia

Frictional & structural

Someone is officially considered unemployed when

They're in the labor force, don't have a job, and are looking for one

U.S. economy considered to be at full- employment when

4-5% of labor force is employed

Natural rate

Frictional + structural

Unemployment rate is understated because of

Uncounted discouraged workers

Demand- pull inflation

Inflation increases in aggregate demand due to too much spending

Cost- push inflation is

Initiated when wages or other resource costs increase

COLA

Cost of living adjustment

People receive COLA's because

Their fixed income rises w inflation

People that benefit from unanticipated inflation are

People paying back loans

A lender wouldn't be punished by unanticipated inflation when

He increases interest rate as inflation approaches by anticipating inflation

Calculate GDP

C+Ig+G+Xn

Avoid double counting with GDP by

Not counting intermediate goods & only counting final product

GDP measures & reports output by

Measuring final production & adding up aggregate spending on final goods & services

We wouldn't have an accurate measure of GDP if we

Summed up all market transactions because we'd be counting all intermediate goods which would cause GDP to go up

GDP would go up if

We included intermediate goods & services in GDP counting

Changes in inventories are

Counted in GDP because we want to measure inventory

Smallest component of GDP

Net Foreign Factor of Trade

Government transfer payments are

Not included in GDP

What's included in government spending is

Military purposes

Next exports are negative when

Imports are higher than exports

What's considered economic investments & included in GDP are (1)

Factory equipment maintenance

What's considered economic investments & included in GDP are (2)

New factory equipment

What's considered economic investments & included in GDP are (3)

Construction of housing

What's considered economic investments & included in GDP are (4)

Unsold inventory built in a year

Buying stock is

Not considered to be apart of economic investment

Calculate net exports

Exports - imports = GDP

Nominal GDP

Nominal includes inflation

Real GDP

More accurate; doesn't include inflation

If nominal GDP increased, but real GDP decreased then it would cause

Inflation

Price index

Overall change in price

Rule of 70

Allows us to figure out how many years it'll take GDP to double at a certain rate of growth

Real GDP calculated

this year's production × earlier years price

2 GDP deflator formulas

Real GDP & Price index

Real GDP

Nominal GDP ÷ Price index

Price index

Nominal GDP ÷ Real GDP