Macroeconomics (Chapter 5-7)

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Gross Domestic Product (GDP)
the *total market value* of all final goods and services produced within a given period by factors of production located within a country
a. Final goods and services: goods and services produced for final use
b. Intermediate goods: goods that are produced by one firm for use in further processing by another firm
Expenditure Approach
a method of computing GDP that measures the total amount spent on all final goods and services during a given period, GDP=C+I+G+(EX-IM)
Consumption
expenditures by consumers on goods and services
i. Durable goods: goods that last a relatively long time, such as cars and household appliances
ii. Nondurable goods: goods that are used up fairly quickly, such as food and clothing
iii. Services: the things that we buy that do not involve the production of physical things, such as legal and medical services and education
Gross Private Domestic Investment (I)
total investment in capital-this is, the purchase of new housing, plants, equipment, and inventory by the private (or nongovernment) sector
i. Residential: expenditures by households and firms on new houses and apartment buildings
ii. Nonresidential: expenditures by firms for machines, tools, plants, and so on
iii. Changes in inventory: the amount by which firms’ inventories change during a period. Inventories are the goods that firms produce now but intend to sell later
Government
expenditures by federal, state, and local governments for final goods and services
i. Excludes transfer payments
Net Exports (EX-IM)
the difference between exports (sales to foreigners of U.S.-produced goods and services) and imports (U.S. purchases of goods and services abroad). The figure can be positive or negative.
Income Approach
a method of computing GDP that measures the income-wages, rents, interests, and profits- received by all factors of production in producing final goods and services
a. *Land*- rental income
b. *Labor*- compensation of employment
c. *Capital*- interest income
d. *Entrepreneur*- corporate profit or proprietor profit
Full/Maximum Employment
Unemployment Rate = Unemployed / Labor Force
i. Labor force=employed + unemployed
Discouraged Worker
person who is not actively seeking employment
i. ______ ______ effect: the decline in the measured unemployment rate that results when people who want to work but cannot find jobs grow discouraged and stop looking, thus dropping out of the ranks of the unemployed and the labor force
Types of Unemployment
i. *Frictional*: the portion of unemployment that is due to the normal turnover in the labor market; used to denote short-run job/skill-matching problems
ii. *Structural*: the portion of unemployment that is due to changes in the structure of the economy that result in a significant loss of jobs in certain industries
iii. *Cyclical*: unemployment that is above frictional plus structural unemployment
1. Marco policy is based on dampening the business cycle to prevent cyclical unemployment
iv. Natural rate of employment= frictional+structural employment
Unemployment is not….
evenly distributed among sexes, ages, or races.
Price Stability-Price Indices (measures inflation)
CPI,PPI,GDP Deflator
Consumer Price Index (CPI)
a price index computed each month by the Bureau of Labor Statistics using a bundle that is meant to represent the “market basket” purchases monthly by the typical urban consumer
i. Market basket of goods
ii. (-) fixed weight does not allow for substitution
iii. (-)does not allow for quality changes
iv. Overstates inflation
Producer Price Index (PPI)
measures of prices that producers receive for products at all stages in the production process
i. Measures prices of goods producers purchase
ii. Allows for estimation of future CPI
GDP Deflator
i. (+) economists love
ii. (-) excludes imports
Economic Growth
a. *Output growth*: the growth of the output of the entire economy
b. *Per-capita output growth*: the growth rate of output per person in the economy
c. *Productivity growth*: the growth rate of output per worker
Categories: Macroeconomics