Macro Econ - Exam 1

macro econ

concerns itself with the overall performance of the economy in a country, region, or the world

GDP

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

Gross World Product

a market value of all final goods and services produced in the World, usually a year

flow variable

measure of something per period of time ex. weekly spending

stock variable

measure of something at a point of time ex. what's in your wallet right now

mercantilism

incorrect theory that a nation's economic objective should be to accumulate precious metals in the public treasury

expansion

economy grows because of rising output, employment, income, and other aggregate measures

contraction

economy declines because of falling output, employment, income, and other aggregate measures

depression

severe and prolonged reduction in the economic activity ex. 1930s

recession

period of decline lasting 3 months or more, usually 6 months

inflation

increase in the economy's average price level, the Fed deals with it and the employment

leading economic indicators

variables that predict a recession/recovery

Coincident Economic Indicators

reflect peaks and troughs as they occur

lagging economic indicators

follow/trail changes in overall economic activity

coincident EI exmaples

employment, income, industrial production

lagging EI exmaples

interest rates, average duration of unemployment

aggregate output

measure of all final goods and service

aggregate demand

relationship between the economy's price level and aggregate demanded with other things constant

price level

measure reflecting the prices of all goods and services relative to prices in a base year

financial investment

the purchase of assets like stocks, bonds, and real estate in hope of reaping a financial gain

economic investment

purchasing roads, tech, cures

real GDP

economy's aggregate output measure in dollars of constant purchasing power, takes inflation into account

aggregate demand curve

relationship between the economy's price level and real GDP demanded per period

aggregate supply curve

relationship between the economy's price level and real GDP per period

expenditure approach to gdp

calculates by adding spending on final goods and services

income approach to gdp

calculates by adding earnings from resources to produce output

intermediate goods/services

purchased by firms for reprocessing and resale

double counting

mistake of including the value of intermediate and final goods when calculating gdp

consumption

household purchases of final good/services except new house which are investments (68% of gdp)

investment

purchases of plants, equipment, buildings, residences, or inventory (16% of gdp)

residential construction

building new homes or dwelling places

inventories

producer's stock of finished and in-process goods

gov. purchases

spending for goods/servvices by all levels of gov., gov. outlays minus transfer payments (20% of gdp)

net exports

value of a country's exports minus the value of its imports (-4% of gdp)

aggregate expenditure

total spending on final goods/services (C+I+G+X-M)

aggregate income

all earnings of resource suppliers

value added

+each stage of production is the selling amount of a product - the cost of intermediate goods bought by other firms

disposable income

income households have to spend/save after taxes

net taxes

=taxes-transfer payments

financial markets

banks that facilitate the flow of funds from savers to borrowers

injection

any spending other than by households or income, includes investments, gov. purchases, exports, transfer payments

leakage

any diversion of income from domestic spending stream, includes saving, taxes, imports

underground economy

market transactions that go unreported because they are illegal or want to evade taxations

depreciation

value of capital stock used up to produce gdp or become obsolute

net domestic products

gdp-depreciation

nominal gdp

gdp based on prices of that time of production

base year

year where other years are compared when constructing an index

consumer price index

measure of inflation based on the cost of a fixed basket of goods/services

chain-weighted system

inflation measure that adjusts the weights from year to year in calculation price index

physical capital

the stock of equipment and structures that are used to produce goods and services

human capital

knowledge and skills through education, training, and experience

natural resources

inputs into production that are provided by nature

technical knowledge

society's understanding of the best ways to product

diminishing returns

property whereby the benefit from an extra unit of input declines as the quantity of the input increases

catch-up effect

countries that start poor, grow more rapidly than countries that start rich ex. 1960-1990 South Korea

foreign direct investment

capital investment that's owned and managed by a foreign entity

foreign portfolio investment

capital investment that's owned and operated by a foreign activity, no management

World Bank

helped build war-torn developing countries

inward-oriented policies

attempt to increase productivity and living standards within the country by avoiding interaction with the rest of the world

outward-oriented policies

international trade to improve the economic well-being of a country's citizens

labor force

16+ who are working or looking for work

unemployment rate

the number of unemployed as a % of the labor force

discourage workers

drop out of the labor force because they can't find work and get frustrated

labor force participation rate

labor force as a % of the adult population

long-term unemployment

those looking for work for 27+ weeks

frictional unemployment

occurs because job seekers and employers need time to find each other

seasonal unemployment

caused by season changes in the demand for certain kinds of labor

structural unemployment

caused by the skills in demand don'ts match those of the unemployed or the unemployed don't live where the jobs are

cyclical unemployment

fluctuates with the business cycle, increases during contractions and decreases during expansions

full employment

employment level when there's no cyclical unemployment

unemployment benefits

cash transfers for those who lose their jobs and actively seek employment

underemployment

people who are overqualified for their jobs or work fewer hours than they would prefer

hyperinflation

very high rate of inflation

deflation

sustained decrease in the price level

disinflation

a reduction in the rate of inflation

demand-pull inflation

sustained rise in the price level caused by a rightward shift of the aggregate deamdn curve

cost-push inflatino

sustained rise in the price level caused by a leftward shift of the aggregate supply curve

interest

dollar amount paid by borrowers to lenders

nominal interest rate

interest rate expressed in current dollars as a % of the amount loaned

real interest rate

interest rate expressed in dollars of constant purchasing powers as a %, = nominal IR - inflation rate

COLA

increase in a transfer payment/wage that reflects the increase in the price level

Malthus

arithmetic is how food grows and geometric is how population grows, positive check, preventative check

Engel

co-partner for communism

Mill

said Malthus was wrong in 1860

Keynes

demand side economics which is the policy focusing on shifting demand to promote employment and price stability

Fogul

nutrition on productivity, body mass index

supply-side economics

rightward shift of aggregate supply through tax cuts that increase production incentives

demand-side economics

policy focusing on shifting demand to promote employment and price stability

private property

property owned by an individual

rule of law

No one is above the law

brain drain

Large-scale emigration by talented people.

rules of the game

the laws, customs, manners, conventions, and other institutional elements that determine transaction costs and thereby affect people's incentive to undertake production and exchange

capital deepening

process of increasing the amount of capital per worker

labor productivity

output per worker

production

process that transforms resources into goods/services

productivity

ratio of a specific measure of output to input

pre worker production function

relationship between the amount of capital per worker in the economy and average output per worker

industrial market countries

economically advanced capitalist countries

developing countries

lower living standard because of less capital per worker

basic research

search for knowledge without regard to how that knowledge will be used