Economics: Production, Inputs, GDP, and Macroeconomic Analysis

Macroeconomics

The branch of economics that explains the economic behavior of aggregates - for example, income, employment, and output - on a national or international scale.

Variable analyzed by a macroeconomist

Gross Domestic Product (GDP).

Example of human capital

Your knowledge of economics.

Example of physical capital

The oil tanks (the tanks themselves) that exist in Houston, Texas.

Example of natural resources

The oil reserves underground in Alaska.

Example of social capital

The trust a community has in others that allow people in that community to leave their doors unlocked at night.

Physical capital

The processed stockpiles of refined oil in Houston oil tanks, the coal located in the hills of West Virginia, the ambulance a private hospital uses to drive a sick person to the emergency room, the hammer a construction worker uses in building, and the desks a private school uses to produce education for students sitting at the desks.

Financial capital

A business loan, a stock from Microsoft Corporation, a U.S. government treasury bond, and retained earnings held out of profits for reinvestment purposes by Armstrong Industries.

Social capital

Your high level of trust in your employer and a factory.

Microeconomics

The study of individual firms and consumers in the economy.

Factors of production for a yarn manufacturer

Yarn, oil waste, and a mechanic's knowledge of bale feeding equipment.

Factors of production for a pencil manufacturer

Lead laying and gluing machinery.

Negative externality

An undesirable unintended production consequence.

Example of negative externality

Pollution from a factory affecting nearby residents.

Example of macroeconomic analysis

The U.S. teenage unemployment rate was 24.5% in June 2011.

Example of financial capital

Retained earnings held out of profits for business reinvestment purposes by Dell Corporation.

Allocatively efficient economics

A type of economics focused on resource allocation.

Theoretical economics

The study of economic theories and models.

Equitable economics

The study of fairness in economic policies.

Utility

The satisfaction or benefit derived from consuming a good or service.

Gross Domestic Product (GDP)

The total value of all goods and services produced within a country in a given period.

Example of a bank building

A physical structure used for banking services.

Insurance policy

A contract that provides financial protection against specified risks.

Retained earnings

Profits that are reinvested in the business rather than distributed to shareholders.

Teenage unemployment

The rate of unemployment among individuals aged 13-19.

Airborne cotton lint

Airborne cotton lint derived from the production of yarn

Worker knowledge

Worker knowledge of yarn production manufacturing equipment

Yarn

Yarn

Work cooperation

Work cooperation among yarn manufacturing employees

Unintended production consequence

None of the above is an undesirable unintended production consequence

Production process

Which of the following depicts a complete picture of the production process as portrayed in this module?

Inputs

Inputs → production → intended output

Unintended output

Unintended output → Δinstitutions → production

Production diagram

Inputs → production → [(a) intended output; (b) unintended output; & (c) Δinstitutions] → human capabilities

Human capabilities

human capabilities → (a) unintended output; and (b) inputs → production

Box A element

Which element is in Box A?

Δcapabilities

Δcapabilities

Production element

Which elements are in Boxes C1, C2, and C3?

Inputs and outputs

inputs, intended output, unintended output

Production location

Where does 'production' go in the diagram?

Box D element

Which element is in Box D?

Primary determinants

Capital and labor are two of the primary determinants of which of the following variables?

Synergistically efficient production

The level of synergistically efficient production in the economy.

Economic growth

Economic growth refers to an increase in the aggregate output level (or aggregate income level) of the entire economy.

Economic recession

The conventional definition of an economic recession is that output declines for a minimum of six months or more.

Aggregate behavior

The behavior of all households and firms taken together is known in macroeconomics as Aggregate behavior.

Yt

The value of Y at time t.

Yt-1

The value of Y at time t-1 (the time period before time t).

Growth Rate Formula

The formula for the change in Y from time t-1 to time t is: (Yt - Yt-1) / Yt-1.

Real Gross Domestic Product (GDP)

The total value of all goods and services produced in a country, adjusted for inflation, expressed in trillions of dollars.

Aggregate Output (GDP)

The total economic output of a country, measured in billions of dollars.

Unemployment Rate

The percentage of the labor force that is jobless and actively seeking employment.

Per Capita GDP

The GDP divided by the population size, representing the average economic output per person.

Economic Statistics for Country X (Table 1.5)

A table presenting GDP and unemployment rate data for the years 2009, 2010, and 2011.

Economic Statistics for Country X (Table 1.6)

A table presenting GDP and unemployment rate data for the years 2009, 2010, and 2011.

Economic Statistics for Country X (Table 2.1)

A table presenting GDP and unemployment rate data for the years 2009, 2010, and 2011.

Growth Rate of Production (2010 to 2011)

The percentage change in aggregate output from 2010 to 2011, calculated using the growth rate formula.

US Population Size

The total number of people living in the United States, measured in millions.

Growth in Chained GDP (by Quarter)

The growth rate of GDP adjusted for inflation, measured quarterly.

Growth in Current Dollar GDP (by Quarter)

The growth rate of GDP measured in current dollars, without adjusting for inflation, measured quarterly.

Recession

A significant decline in economic activity across the economy lasting more than a few months.

Quarter

A three-month period on a company's financial calendar that acts as a basis for periodic financial reports and the paying of dividends.

Economic Recession Period

The time frame during which a recession is identified based on economic indicators.

Growth Rate Calculation

The method used to determine the percentage increase or decrease in economic output over a specified time period.

Table Q

A table presenting the growth rates in chained and current dollar GDP by quarter.

2009 GDP

The GDP value for the year 2009, which is $12.758 trillion.

2010 GDP

The GDP value for the year 2010, which is $13.063 trillion.

2011 GDP

The GDP value for the year 2011, which is $13.299 trillion.

GDP

Gross Domestic Product, a measure of economic activity in billions of dollars.

Nominal GDP

The total economic output of a country without adjusting for inflation.

Physical Capital (K)

The stock of equipment and structures used to produce goods and services.

Labor (L)

The human effort, including physical and mental, used in the production of goods and services.

Natural Resources (NR)

Raw materials and environmental resources used in production.

Aggregate Output (Y)

The total quantity of goods and services produced in an economy.

Closing the Loop

A production system where waste is reused in the production process, creating a sustainable cycle.

Table M

A table showing price and quantity data for a hypothetical three-commodity economy.

Table T

A table containing data on unemployment, population size, and real GDP for specific years.

Quarter IV 1982 through Quarter III 1983

The period identified as having a recession in the economy based on GDP data.

Example of Closed Loop Production

Cotton lint waste from yarn production is used as bedding for chickens, and chicken waste is used as fertilizer to grow cotton.

Prices (P) in GDP

The average amount paid for goods and services traded in the economy.

Hypothetical Economy

An economic model used to illustrate concepts of production, prices, and GDP.

Increase in Labor (↑L)

Can lead to an increase in natural resources (↑NR) or aggregate output (↑Y) in the economic model.

Decrease in Labor (↓L)

Can lead to a decrease in aggregate output (↓Y) in the economic model.

Increase in Physical Capital (↑K)

Can lead to an increase in labor (↑L) and aggregate output (↑Y) in the economic model.

Increase in Natural Resources (↑NR)

Can lead to an increase in labor (↑L) and aggregate output (↑Y) in the economic model.

Nominal GDP for Two-Commodity Economy

Calculated based on the prices and quantities of cars and university room & board.

Nominal GDP for Three-Commodity Economy

Calculated based on the prices and quantities of bicycles, coffee, and apartments.

Real Gross Domestic Product (Y)

The inflation-adjusted measure of the value of all goods and services produced in an economy.

Economic model

A simplification of the real economy.

Ceteris paribus

Holding all else constant when constructing an economic model.

We

Wealth of the consumer.

Y

GDP (e.g., aggregate income, aggregate output).

C

Consumption expenditure.

Ideal modeling procedure

A necessary standard step in the economic modeling process.

Good economic modeling process

Asking economic questions that ideally begin with 'why' or 'how'.

Formal step in economic modeling

Defining necessary concepts underlying the economic question.

Chain of cause-and-effect

A representation of the relationship between variables in economic modeling.

Economic liberals

Economists who believe that increased government spending increases aggregate demand for goods and services.

G

Government spending.

AD

Aggregate demand for goods and services.