macroecon

GDP

Total value of all final goods and services produced in a country in one year.

GDP formula

C + I + G + (X − M)

Consumption (C)

Spending by households.

Investment (I)

Spending on capital housing and inventory.

Government spending (G)

Government purchases of goods and services.

Net exports

Exports minus imports.

Final goods

Goods purchased for final use.

Intermediate goods

Goods used in production not counted in GDP.

Value added

Output minus cost of inputs.

NDP

GDP minus depreciation.

Depreciation

Worn out capital.

GDP vs GNP

GDP is domestic production; GNP is production by citizens.

GNP formula

GDP plus income abroad minus foreign income.

Nominal GDP

Measured at current prices.

Real GDP

Adjusted for inflation.

GDP deflator

Measure of inflation.

Real interest rate

Nominal minus inflation.

Inventory

Unsold goods counted as investment.

Economic growth

Increase in real GDP over time.

GDP growth formula

(Yt minus Yt-1 divided by Yt-1) times 100.

GDP per capita

GDP divided by population.

Rule of 72

72 divided by growth rate equals years to double.

Compounding

Growth builds on previous growth.

Business cycle

Fluctuations around long run growth.

Recession

Falling output.

Peak

Highest point of cycle.

Trough

Lowest point of cycle.

Potential output

Maximum sustainable output.

Cyclical unemployment

Caused by recessions.

Structural unemployment

Skills mismatch.

Frictional unemployment

Temporary job switching.

Seasonal unemployment

Due to seasons.

Growth factors

Technology, capital, human capital, trade, entrepreneurship.

Aggregate demand

Total spending in the economy.

AD formula

C + I + G + (X − M).

AD slope

Downward.

Wealth effect

Lower prices increase spending.

Interest rate effect

Lower prices reduce interest rates and increase investment.

International effect

Lower prices increase exports.

Short run aggregate supply

SAS upward sloping.

Long run aggregate supply

LAS vertical.

SAS shifts left

Costs increase.

SAS shifts right

Costs decrease.

Short run equilibrium

AD equals SAS.

Long run equilibrium

AD equals SAS equals LAS.

Recessionary gap

Output below potential.

Inflationary gap

Output above potential.

Fiscal policy

Government spending and taxes.

Expansionary fiscal policy

Increase spending or decrease taxes.

Contractionary fiscal policy

Decrease spending or increase taxes.

Increase government spending

AD increases.

Decrease taxes

AD increases.

Increase taxes

AD decreases.

Reserve ratio

Reserves divided by deposits.

Money multiplier

1 divided by reserve ratio.

Federal Reserve

Central bank of the US.

Open market operations

Buying and selling bonds.

Discount rate

Rate banks borrow from Fed.

Expansionary monetary policy

Increase money supply.

Contractionary monetary policy

Decrease money supply.

Subprime mortgages

High risk loans.

Housing bubble

Rapid increase in housing prices.

Moral hazard

Risk taking due to protection.

Quantitative easing

Fed buys large financial assets.

Credit easing

Fed lends to financial institutions.