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macro 3
| Question | Answer |
|---|---|
| Business cycle | The short-term fluctuations in economic activity, reflecting deviations of actual output from potential output |
| Potential output | The level of output that occurs when all of a country's resources are fully employed |
| Output gap | The percentage difference between actual output and potential output |
| A negative output gap | (bust) indicates idle resources, |
| a positive output gap | (boom) indicates unsustainable intensity |
| Recession | A period of declining economic activity that runs from a peak to a trough |
| peak | high point |
| trough | low point |
| Expansion | A period of increasing economic activity running from a trough to a peak |
| Leading indicators | Variables, such as consumer confidence or the stock market, that tend to predict the future path of the economy |
| Lagging indicators | Variables that follow business cycle movements with a delay, such as unemployment |
| Comovement | The tendency for many economic variables to move up and down together over the business cycle |
| Okun’s rule of thumb | A principle stating that for every percentage point actual output is below potential, the unemployment rate will be approximately half a percentage point higher |
| Seasonally adjusted data | Economic data that has been stripped of predictable seasonal patterns to reveal underlying trends |
| Annualized rate | Data from a period of less than a year converted to the rate that would occur if that same pace continued for a full year |
| Aggregate expenditure | The total amount of goods and services that people across the whole economy want to buy, consisting of consumption, planned investment, government purchases, and net exports |
| Macroeconomic equilibrium | Occurs when the quantity of output suppliers produce is equal to the quantity buyers want to purchase (Output = Aggregate Expenditure) |
| IS curve | A curve illustrating how lower real interest rates boost aggregate expenditure and lead to a more positive output gap |
| MP curve | A curve illustrating the current real interest rate, shaped by both monetary policy and the financial sector |
| Monetary policy | The process of setting interest rates to influence economic conditions |
| Fiscal policy | The government’s use of spending and tax policies to influence economic outcomes |
| Risk-free interest rate | The interest rate on a loan involving no risk, effectively set by the Federal Reserve |
| Risk premium | The extra interest lenders charge to account for the risk of a loan |
| Multiplier | A measure of how much GDP changes as a result of the direct and indirect "ripple" effects from an extra dollar of spending |
| Inflation expectations | The rate at which average prices are anticipated to rise over the next year |
| Demand-pull inflation | Inflation resulting from excess demand pulling prices up |
| Cost-push inflation | Inflation resulting from an unexpected rise in production costs, such as higher input prices |
| Phillips curve | A framework depicting the link between the output gap and unexpected inflation (the difference between actual and expected inflation) |
| Supply shock | Any change in production costs, such as shifting oil prices or productivity, that causes the Phillips curve to shift |
| Wage-price spiral | A cycle where higher prices lead to higher nominal wages, which in turn leads to even higher production costs and prices |
| Excess demand | A situation where the quantity demanded at the prevailing price exceeds the quantity supplied |
| Insufficient demand | A condition where the quantity demanded at the prevailing price is below what is being supplied by producers |
| Financial shocks | defined as any change in borrowing conditions that alters the real interest rate at which people and businesses can borrow. These shocks cause the MP curve to shift within the IS-MP framework. Primary sources being The Federal Reserve, Financial Markets |
| Which of these tracks how many jobs are created each month? | nonfarm payrolls |
| what the purpose of an annualized rate | It standardizes data, allowing for direct comparison of economic performance (e.g., inflation, GDP, employment) across different periods. |
| Faster than expected productivity growth lowers a business's _____, leading to greater price restraint at any given output gap. | marginal cost |
| hwy is the steepness of a philips curve significant | The steeper the Phillips curve, the greater (or larger) is the impact of a change in the output gap on inflation. |
| supply shocks that could shift the Phillips curve | a rise in input prices a new technology that raises productivity . a drop in the exchange rate |
| anchored inflation expectation | here the public expects inflation to remain stable, even if it rises temporarily |
| Sticky inflation expectation | the economic concept where prices and wages are slow to adjust to changes in supply and demand, often staying fixed in the short run |
| Rational inflation expectation | the theory that people use all available information, including policy changes and historical data, to form accurate expectations about future inflation |
| adaptive inflation expectation | a theory where individuals form expectations about future inflation based solely on past experiences and recently observed inflation rates |
| the great moderation | a period of reduced macroeconomic volatility in the United States |
| Long term growth reflects | potential output |
| Business Cycles Are Not Cycles | They are fluctuations around the potential |
| Unemployment rises during recessions | Keeps rising even after recession is over and takes years to recover (long term impact) |
| Recessions happen | peak to a trough |
| Expansions happen | through to the next peak Expansions |
| Expansions don't end naturally | Usually end if there is a shock Eg a pandemic Oil price spike Financial crisis etc |
| Recessions are | sharp and short ,GDP falls fast and unemployment rises fast |
| Expansions are | long and gradual, Slow recovery because its coming from a bust |
| predictions are easy,, | in the short term because you expect the same trends for the following year |
| To track the economy | Use many indicators The broader the better Fins just in time data Fiend signals amid noise |
Created by:
Zariii