Macro Intro unit

Aggregate demand

Aggregate demand

total demand for goods and services in the economy

Business Cycle

The natural rise and fall of economic growth that occurs over time.

Capital

The machinery, buildings, and tools used to produce goods and services. Also referred to as Physical Capital or Capital Stock.

Circular Flow Model

Depicts how money circulates through the economy.

Closed economy

an economy that does not interact with other economies. In other words, there is no trade.

Consumption

Refers to spending by households. This is the majority of spending in the US economy.

Cyclical Unemployment

Unemployment caused by a reduction in the output of a country, when a country is operating below full employment output.

Disequilibrium

A situation where internal and/or external forces cause the market to fall out of balance. Price is not at intersection of supply and demand.

Economic Growth

An increase in Real GDP. This goal focuses on improving production so that future generations are better off, living standard rise, more wants and needs are satisfied and scarcity becomes less of a problem.

Economics

The study of how societies and individual deal with scarcity

Entrepreneur

An individual who, rather than working as an employee, founds and runs a business, assuming all the risks and rewards.

Equilibrium

A situation in which the market price has reached the level at which quantity supplied equals quantity demanded. Price is at the intersection of supply and demand.

Exports

Goods that are produced domestically and sold abroad

Exports (X)

domestically produced goods and services that are sold abroad.

Factor Market

Market for factors of production (like labor)

Factors of production

Land, labor, capital, entrepreneurs - the resources that go into creating products/services.

Financial Capital

Funds that are available for investment

Flexible wages

Wages that have responded (in the long run) to changes in market prices (unlike sticky wages which don't respond in the short run).

Frictional Unemployment

When a worker is between jobs, or a student has graduated and is looking for her/his first job. Individuals are qualified workers with transferable skills

Full Employment

Typically around 4-6% unemployed, at this level there is no cyclical unemployment but rather just structural and frictional unemployment. Also known as NRU.

Full-employment output

Another name for production at potential GDP. This term focuses on the fact that employment is at the NRU.

GDP expenditures approach

Adds up all the spending (C + I + G + Xn) on final goods and services that were produced in a given year

GDP income approach

Alternative method of calculating GDP that adds up all the income that resulted from selling all final goods and services produced in a given year (rent, interest, wages, and profit)

Gross Domestic Product

The dollar value of all final goods and services produced within a country's borders in one year.

Real GDP per Capita

A country's real GDP divided by its population. Considered best standard of living measure.

Human capital

Any skills or knowledge gained by a worker through education and experience.

Hyperinflation

Very rapid price increases in excess of 50 percent per year

Imports (M)

Foreign-made goods and services that are sold domestically

Incentive

Something that induces a person to act a certain way

Inflation

The rising in the general level of prices which reduces the purchasing power of money

Inflation Rate

The percent change in prices from year to year

Investment

The money spent by businesses to improve their production.

Labor

The effort people contribute to the factors of production

Land

All natural resources used to create goods and services.

Long-run aggregate supply (LRAS) curve

Shows the idea that in the long run, production is limited by a nation's scarce resources.

Long-Run Self-Adjustment

The idea that an economy will return to full employment output in the long run, even without government intervention.

Macroeconomics

The study of the large economy as a whole or economic aggregates (groups/clusters).

Market

A group of buyers and sellers of a particular good or service

National income

Another name for real GDP that focuses on how much the production of a country earned in wages, rent, profit, and interest.

Natural Rate of Unemployment (NRU)

Estimated in the US at 4-6%, it is determined by adding frictional + structural unemployment which are expected (while excluding cyclical unemployment which is undesirable). Also known as full employment.

Negative output gap

Short-run situation where actual GDP is below the productive potential of the economy.

Net exports (Nx)

Exports minus imports, also known as balance of trade.

Open economy

An economy that interacts with other economies. In other words, there is trade.

Opportunity Cost

The most desirable option given up when you make a choice.

Peak

The highest point between the end of an economic expansion and the start of a contraction in a business cycle

Positive output gap

Short-run situation where actual GDP is above the productive potential of the economy.

Potential GDP

Another name for full GDP, that focuses on how much the country can produce if it is at long-run equilibrium.

Price level

The average of current prices across the entire spectrum of goods and services produced in the economy.

Product Market

Market for goods and services

Real GDP

GDP adjusted for inflation, necessary to understand whether a change in GDP is due to a change in productivity or simply a change in price level.

Recession

Two quarters of consecutive negative GDP growth.

Scarcity

The fundamental economic problem arising from the fact that, while resources are limited, society's demand for resources are unlimited.

Stagflation

A situation where there is high inflation with high unemployment along with limited economic growth.

Sticky prices

Resource prices (such as lumber used to build a sofa) that stay the same in the short-run despite changes in the price level.

Sticky wages

The pay of employed workers tends to have a slow response to the changes in the performance of a company or of the broader economy. They do not change in the short run.

Structural Unemployment

Workers do not have transferable skills and these jobs won't come back. This category includes technological unemployment.

Trend line

Indicates the general pattern or direction of the economy in the business cycle. In the US, this is upward sloping indicating growth in real GDP over time.

Trough

The lowest point between the end of a contraction and the start of an economic expansion in the business cycle.

Unemployed

Workers that are out of work, actively looking for a job, but unable to find a job.

Unemployment rate

The percent of people in the labor force who want a job but are not working