Macro Chapters 5-8
Quiz yourself by thinking what should be in
each of the black spaces below before clicking
on it to display the answer.
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| show | Market value of all final goods and services produced in a country in a given year.
Measured quarterly
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| show | Measure of the overall level of prices at a PARTICULAR POINT IN TIME
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| What are the phases of the business cycle? | show 🗑
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| show | Expansions are longer than contractions
Economy grows over time
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| Contractions | show 🗑
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| show | Expansion
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| show | Variables predicting turns in business cycle.
EX.
Orders of equipment
Stock market
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| show | Reflecting the business cycle as it occurs
EX. Total employment
Personal income
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| What is a lagging indicator? | show 🗑
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| show | Relationship between price level and real GDP demanded
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| show | Higher price level reduces wealth and spending
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| show | Relationship between price level and real GDP supplied
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| show | Short Run- firms do not adjust their price instantly to changes in the economy.
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| show | Fall in housing prices 18 months
Falling in wealth
Financial crisis for lenders
Falls in spending and AD
GDP Decline 5%
Employment fell 6.1%
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| show | Post WWII average: 11 months
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| show | Widespread inflation
Result: higher production costs decrease AS
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| show | The total value of all final goods and services produced in a country in a given year.
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| show | Every Year
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| Calculating GDP--expenditure approach What are the components? | show 🗑
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| show | Consumption (70%)
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| show | Investment
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| show | Calculated by summing the value of resource costs and incomes generated during the measurement period.
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| Calculating GDP--income approach What is the largest component? | show 🗑
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| What are the limitations of GDP as a measure of output & social welfare? | show 🗑
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| show | Crime rate
Education
Health
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| The underground economy | show 🗑
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| show | Unpaid work
Housework
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| Nominal vs. real GDP--what’s the difference? | show 🗑
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| show | • Price level rises
• Output rises
• Or both
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| show | • Output rises
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| show | Measures price level for goods and services used by typical urban consumer
“market basket”
Measured Monthly by Bureau of Labor Statistics (BLS)
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| show | Cost of basket in year Z (Divided by) Cost of basket in base year X 100
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| What are some problems with the CPI as a measure of the cost of living? | show 🗑
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| show | A measure of the overall price of goods and services related to some base year.
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| How does GDP Price Index differ from CPI? | show 🗑
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| show | Real GDP
Measures of changes in an economy’s productive capacity over time
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| show | Real GDP (divided by) population
Standard of living
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| Nominal GDP 2012 | show 🗑
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| Real GDP 2012 | show 🗑
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| show | % change in Real GDP/ (Divided by) Time economic growth
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| US unemployment Percentage | show 🗑
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| show | Monthly Survey
60,000 Households
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| show | working for pay OR
actively looking for work
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| Who is not in the labor force? | show 🗑
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| show | # Unemployed (Divided by) Labor Force (Times) 100
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| Labor force participation rate | show 🗑
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| show | During a recession, median duration rises
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| Fricctional Unemployment | show 🗑
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| show | Seasonal changes in labor demand
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| Structural Unemployment | show 🗑
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| Cyclical Unemployment | show 🗑
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| show | 4-6% unemployment
No cyclical unemployment
structural, frictional at minimum
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| Why is the goal of unemployment NOT zero? | show 🗑
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| What is inflation and how is it measured? | show 🗑
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| What is the current Inflation Rate | show 🗑
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| What causes inflation? | show 🗑
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| show | supply side
increase in cost of production
cost increase passed on
all prices rise
stagflation
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| Demand Pull Inflation | show 🗑
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| Why is Inflation a Problem? | show 🗑
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| show | Consumers, lenders, firms less willing to commit long-term
GDP growth slows
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| Real interest rates | show 🗑
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| show | Stated interest rate
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| show | Personal costs
Lost output
Lower tax revenue
Loss of human capital
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| show | Decrease in Price Level
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| Disinflation | show 🗑
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| show | When inflation is high & variable
Uncertainty about future prices
Some investment not undertaken
Some purchases not made
Result: lower growth of GDP
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| show | measures improvements in the standard of living of a nation?
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| show | Real GDP must increase more rapidly than population.
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| show | Temporary
Better use of existing production possibilities
Move from INSIDE PPF to OUTSIDE PPF
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| show | Lasting increase in output,& rising living standards
Increase in productive capacity
PPF shifts out
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| show | Percent change in real GDP annually
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| What is productivity? | show 🗑
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| Why do we use labor productivity to measure productivity? | show 🗑
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| show | Relationship between-
Labor productivity
Capital per worker
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| show | Tools, factories, machines, computers, infrastructure
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| What is human capital? | show 🗑
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| As capital per worker rises | show 🗑
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| show | Intense Labor
Capital Intensive
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| show | Institutions that promote economic activity
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| The role of research | show 🗑
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| show | Government takes active role in nurturing domestic industries
Tax breaks and subsidies
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| show | Oil prices and stagflation
Environmental regulation
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| US productivity Rebound in 1990 | show 🗑
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| show | laws, governance
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| Informal Rule of game | show 🗑
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