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Macroeconomics Nutsh
Macroeconomics in a nutshell
| What is macroeconomics? | Economy-wide phenomenon (inflation, unemployment, economic growth) |
| What is GDP? | Gross Domestic Product; Market value of goods and services in a country during a period of time |
| What are the three GDP calculation approaches? | Income approach, expenditure approach, calue-added approach |
| What is the expenditure approach? | Consumption + Investment + Government purchases + Net exports |
| What isn`t included in the GDP? | Stock purchases, private and government transfers, secondary goods, house-hold production, legal and illegal transactions |
| What does it mean when total spending rises? | More production or higher costs |
| How is economic growth mesured? | With the percentage change in real GDP |
| How are inventory goods counted in GDP? | Investments |
| What are government subsidies considered in GDP? | Transfers |
| What is CPI? | Consumer Price Index; overall cost of goods by average an person |
| What is inflation? | economy's price level rising |
| What is inflation rate? | percentage change |
| What is the difference between CPI and GDP? | GDP is a country's production and CPI is a person's consumption |
| What is often included in the CPI? | Food, shelter, transport, clothing, health |
| Pitfalls of using CPI approach? | Substitution bias, introduction of new goods, quality changes in goods |
| How are the baskets different for CPI and GDP? | CPI uses fixed baskets and GDP uses different baskets |
| How do you calculate the real interest rate? | Subtract the inflation rate from the nominal interest rate |
| How is productivity defined? | Quantity of goods and services produced |
| What is the law of diminishing marginal productivity? | adding more than what is sufficient is no longer productive |
| Public policies that encourage growth? | Encouraging savings and investment Higher education More technology Encouraging free trade |
| Ways to finance capital investments? | Borrowing money or someone gives money for share of future profits |
| What is a financial system? | A group of institutions that help match on person's savings with another person's investments |
| How to achieve long-run economic growth? | Savings and investment |
| What are the two types of financial institutions? | Financial markets and financial intermediaries |
| What are savers? | People who spend less than income |
| What are borrowers? | People who spend more than income |
| What is a bond? | Certificate of indebtedness that specifies the obligation of the borrower to the bond holder |
| What is a stock? | Represents ownership of a firm, a claim to its profits |
| What determines the value of a stock? | Supply and demand |
| What is the difference between stocks and bonds? | Stocks are future profit on a company and bonds are owing contracts |
| What are loanable funds? | Supply of savings and demand for borrowing; the flow of resources available to fund private investment |
| What causes higher savings rates? | Tax incentives for saving, higher consumption taxes, government budge surplus |
| What is crowding out? | Decrease in investment because of government borrowing |
| What do tax incentives for saving do? | Loanable funds supply increase, equilibrium interest rate reduces, quantity increases |
| What does investment tax credit do? | Loanable funds demand increases, interest rate increases, quantity of loanable funds increases |
| What does a budget deficit do? | Loanable funds supply decreases, interest rates increase, quantity of loanable funds decreases |
| What is investment tax credit? | Tax advantage to firm for buying or building something |
| What is cyclical unemployment rate? | Year to year fluctuations |
| What is frictional unemployment? | Between two jobs, looking for a job |
| What policies are made to improve employment? | More information on job availability, rates of pay, and location |
| What policies are made to improve structural unemployment? | Subsidize training programs, relocation allowances |
| How do you calculate the unemployment rate? | The number of unemployed divided by the number of people in the labor force (times 100) |
| How do you calculate the labor force participation rate? | The number of in the labor force divided by the adult population (times 100) |
| What is a closed economy? | An economy that doesn't interact with other economies |
| What is an open economy? | An economy that interacts with other economies |
| What two ways does an open economy interact? | It buys an sells goods and services in world product markets It buys and sells capital assets such as stocks and bonds in world financial markets |
| What is a trade surplus? | more exports than imports |
| What is a trade deficit? | more imports than exports |
| What is a balanced trade? | exports equal to imports |
| What is NCO? | Net Capital Outflow; the purchase of foreign assets by domestic residents minus the purchase of domestic assets by foreigners |
| What influences NCO? | Real interest rates being paid on foreign assets Real interest rates being paiod on domestic assets Perceived economic and political risks of holding assets abroad |
| What is a nominal exchange rate? | How different exchange rates compare to each other |
| When e (nominal exchange rate) raises, what happens to the Canadian dollar? | It appreciates |
| When E (real exchange rate) raises, what happens to the Canadian dollar? | It deppreciates |
| How to calculate the real exchange rate? | Nominal exchange rate (US over CAD) times domestic price divided by foreign price |
| What is arbitrage? | Buying somewhere for cheap and selling it somewhere else for more |
| What is a small open economy? | The country can trade with other economies, but has no negligeable effects by itself |
| What is interest rate parity? | A theory of interest rate being determined by the real interest rate in all economies |
| What are the limits of interest rate parity? | The real interest rates are not always equal to those in the rest of the world and not all assets have perfect substitutes for one another |
Created by:
DylanTheLazyGoose
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