macroecon
Term,Definition
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
GDP is a flow,Measured over time
Stock,Measured at a point in time
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
Inventory increase,GDP increases
Inventory decrease,GDP decreases
Economic growth,Increase in real GDP over time
GDP growth formula,
GDP per capita,GDP divided by population
GDP per capita growth,GDP growth minus population growth
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
Expansion,Rising output
Peak,Highest point of cycle
Recession,Falling output
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
AD shifts right,Increase in spending
AD shifts left,Decrease in spending
Short run aggregate supply,SAS upward sloping
Long run aggregate supply,LAS vertical
LAS represents,Potential output
SAS shifts left,Costs increase
SAS shifts right,Costs decrease
Input prices increase,SAS shifts left
Technology improves,SAS shifts right
Productivity increases,SAS shifts right
Short run equilibrium,AD equals SAS
Long run equilibrium,AD equals SAS equals LAS
Recessionary gap,Output below potential
Inflationary gap,Output above potential
Self correction recession,Wages fall SAS shifts right
Self correction inflation,Wages rise SAS shifts left
Fiscal policy,Government spending and taxes
Expansionary fiscal policy,Increase spending or decrease taxes
Used for recessionary gap,Expansionary policy
Contractionary fiscal policy,Decrease spending or increase taxes
Used for inflationary gap,Contractionary policy
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
Higher reserve ratio,Lower money multiplier
Lower reserve ratio,Higher money multiplier
Federal Reserve,Central bank of the US
Open market operations,Buying and selling bonds
Buying bonds,Increases money supply
Selling bonds,Decreases money supply
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
Herding,Following others behavior
Leverage,Borrowing to invest
Systemic risk,Risk affecting entire economy
Moral hazard,Risk taking due to protection
Quantitative easing,Fed buys large financial assets
Credit easing,Fed lends to financial institutions