Macroeconomics - 2.1, 2.2, 2.3, 2.4, 2.5, 2.6

Circular flow model

A simplified representation of the macroeconomy.

→ Shows the flow of money, goods and services and factors of production through the economy.

→ Allows for the visualization of key concepts behind the national accounts.

Household

Consists of either an individual or a group of people who share their income.

→ Involved in consumer spending, buying goods and service from both domestic firms and firms in the rest of the world.

Firm

An organization that produces goods and services for sale- and that employs members of households.

Product Market

The markets for goods and services, in which households buy the goods and services they want from firms

Factor Market

In which firms buy the resources they need to produce goods and services

Government transfer

Payments that the govt makes to individuals without expecting a good or service in return.

Transfer include subsidies and public goods

Financial Market

Individuals, banks, and other institutions buy and sell stocks and bonds as well as make loans.

Foreign borrowing

borrowing by foreigners from Us lenders and purchases by Americans of stock in foreign companies - leads to a flow of funds out of the United States to the rest of the world.

Investment spending

Spending on new productive physical capital, such as machinery and buildings, and on changes in inventories- as part of total spending on goods and services

Gross Domestic Product

Total value of all final goods and services produced in an economy during a given period

Final goods and services

Goods and service sold to the final/end use

Intermediate goods and services

Goods and services that are inputs into the production of final goods and services

Value-added approach

TP survey firms and add up their contributions to the value of final goods and services

Expenditure approach

To add up aggregate spending on domestically produced final goods and services in the economy - the sum of consumer spending, investment spending, government purchases of goods and services, and exports minus imports.

Income approach

Add up the total factor income earned by households from firms in the economy, including rent, wages, interest and profit

Net export

Exports - imports

GPD per capita

Measure of standard of living

Depreciation

When machines or tools go obsolete or break

Labor force

The sum of all persons age sixteen and above who are either unemployed or actively seeking employment. Basically the human resource of the country

Unemployment rate

The number of unemployed individuals divided by the total number of persons in the civilian labor force

Labor force participation rate

Natural rate of unemployment

Unemployment rate that exists when the economy is healthy (frictional + Structural)

Long-term unemployment

Workers who have been without a job for twenty - seven weeks or more

GDP gap

The difference between the actual GDP and the potential GDP that could be produced if all resources were fully employed

Misery Index

The sum of monthly inflatio and unemployment rates

Frictional

The situation where workers are between jobs for one reason or another. This is usually a short-term condition and workers suffer little economic hardship

structural

This is when economic progress or a fundamental change in the operations of the economy reduces the demand for workers and their skills

technological

This occurs when workers are replaced by machines or automated systems that make theirs skill obsolete - Considered a part of Structural unemployment in AP Macro

cyclical

This is directly related to swings in the business cycle

seasonal unemployment

This includes seasonal changes in the weather or in the demand for certain products or jobs

Consumer Price Index

A comprehensive statistical series that tracks monthly changes in the prices paid by consumers for a representative “basket” of goods and services

Inflation

When the general level of prices rises

Deflation

A decline in the general level of prices

Hyperinflation

Inflation in the range of 500% a year and above - does not happen very often

Stagflation

A period of stagnant economic growth couples with inflation

Producer Price Index

A monthly series that reports pieces received by domestic producers

Disinflation

Moving forcefully to bring inflation rate down

Real Variables

Nominal GDP

GDP in current prices

Real GDP

The total value of all final goods and services produced in the economy during a year, calculated as if prices had stayed constant at the level of some given base year in order to remove the effects of price changes

GDP Deflator

Used to deflate the nominal GDP to result in giving us the real GDP

Business Cycle

Regular ups and down of real GDP

Business Fluctuation

The rise and fall of real GDP over time in an irregular manner

Recession

Unemployment rate is rising; an economic contraction that lasts at least 6 months

Peak

Trough

Expanison

Unemployment rate is falling

Depression

A state of the economy with large numbers of people out of work, acute shortages, and excess capacity in manufacturing plants

Leading economic indicator

A statistical series that normally turns down before the economy turn down or turns up before the economy turns up

Dow Jones Industrial Average

A statistical series of 30 representative stock prices that represents daily changes of all stocks in major markets

Leading economic Index

A monthly statistical series that uses a combination of 10 individual indicators to forecast changes in real GDP and the general direction of the US economy