Macroeconomics Chapter 2 Test-Study Guide

is the measure of a nations total economic activity

a good or service that is used in the production of final goods. Ex. wool –> sweater

a payment made or income received in which no goods or services are being paid for

GDP = Consumption + Investment + Government Expenditures (Exports-Imports)

goods not for immediate consumption

Income approach (wages, rental income, profit)
Expenditure approach (personal consumption, durable goods)

GDP that has not been adjusted for inflation

Measure of the value of economic output adjusted for price changes

The average of price relatives for goods/services

the average output of the economy per person measured in a base year prices

in order to estimate the number of years for a variable to double

Rule of 70 = 70/growth rate

an increase in the capacity of an economy to produce goods and services

Strong property rights, patents and copyrights, efficient financial institutions, literacy and widespread education, free trade, and competitive market

supply factors, demand factor, efficiency factor, production possibilities analysis

increase in hours of work, increase in labor productivity

reductions in per unit production costs that will result from increases in output levels

Microchip/Informative technology, start up firms and increasing returns, sources of increasing returns, specialized inputs, spreading of development costs, network effect

alternating increases and decreases in economic activity overtime. Peak, Recession, Trough, Expansion

Frictional- individuals searching for or waiting to take jobs soon
Structural-occurs due to change in the structure of the demand for labor
Cyclical-caused by a decline in total spending

All who are willing to work are employed

a rise in the general level of prices

Demand-Pull–excess spending relative to output
Cost-Push–increase in prices of inputs like labour, raw materials, leads to a decreased supply of these goods

is the difference between actual GDP and potential GDP

fraction of total income consumed
APC= Consumption/Income

fraction of the total income saved
APS= Saving/Income

proportion of a change in income saved
MPS= Change in Saving/Change in Income

proportion of a change in income consumed
MPC= Change in Consumption/Change in Income

something that shows the amount of firms plan to invest at various possible values of real GDP

a change in spending changes real GDP more than the initial change in spending
Multiplier=Change in Real GDP/Initial change in Spending