macroeconomics chapters 6 – 10

alternate periods of economic expansion and economic recession, fluctuations in economic activity, such as employment and production

an economic slump; a depression; a decline

a measure of GDP in which the quantities produced are valued at the prices in a base year rather than at current prices

the value of final goods and services evaluated at current year prices

measures the number of people who are able to work, but do not have a job during a period of time

a rise in the overall level of prices

the phenomenon in which nations for the first time have experienced sustained increases in real GDP per capita.

income not spent on consumption or when consumption is less than current output

when resources are devoted to benefits in the future; the use of assets to earn income or profit

the purchase of assets like stocks, bonds, and real estate in hope of reaping a financial gain

has to do with the creation and expansion of business enterprises. only includes money spent purchasing newly created capital goods such as machines, tools, ect

unexpected changes in the demand for goods and services ex. positive demand shocks refer to a situation in which demand turns out to be higher than expected. ex. negative demand shocks refer to a situation in which demand turns out to be lower than expected.

unexpected changes in the supply of goods and services

way people think about the future

when firms are expecting one thing to happen but then something else happens. (These sorts of decisions are necessitated by the shock and surprise of having to deal with an unexpected situation)

product prices that freely move upward or downward when product demand or supply changes, they react within seconds to change in supply and demand, rapidly adjusting

prices that remain the same

prices that don’t change easily

the merchandise that a shop has on hand

total dollar value of all final goods and services produced in a country during a single year

studies long run economic growth and short run economic fluctuations Their focus is on 3 key statistics real gdp,unemployment and inflation

Savings, Investment (in a business)

Measures the economy’s performance by measuring the flows of income and expenditures.

Goods purchased for resale or for use in producing another good or service.

Goods to be sold to the consumer for final use, these goods are not for resale.

Wrongly including the value of intermediate goods in the GDP counting the same good or service more than once.

the gross value of the product – the costs of raw materials and energy

Government payments that are sent to certain households ex. Social Security, Welfare

Gifts, inheritances, charitable contributions are not included in GDP

Buying and selling of stocks

The total or sum of all monies spent to purchase aggregate output. One of two ways to calculate GDP.

The total or sum of all income earned in the production of GDP. One of two ways to calculate GDP.

All goods and services bought by households

Gross investment – depreciation

spending by federal, state, and local governments on goods and services

increase in total output or real GDP

Ratio of real GDP divided by population.

70 / annual percentage rate of growth

Due to Improved products, added leisure, other impacts

Strong Property Rights, Patents and Copyrights, Efficient Financial Institutions, Literacy and Widespread Education Competitive Market System and Free Trade

changes in the physical and technical agents of production; (in growth) this enables an economy to expand it’s potential GDP

The increase in the level of aggregate demand that brings about the economic growth made possible by an increase in the production potential of the economy

the percentage of the working age population in the labor force

the supply-side elements such as productivity and labor inputs that contribute to changes in real GDP over some specific time period

a system of public works; the resources and facilities required for an activity; permanent military installations

The knowledge, skills, and abilities that make a worker productive

a situation in which long-run average cost increases as a firm’s output increases ex. markets increase it’s size over time

means that humans create to store and transmit information

various aspects of new information technology

an increase in a firm’s output by a larger percentage than the percentage increase in its inputs

70 / percentage growth rate = doubling time in years

Economic growth maintaining increase in RGDP per capita

countries that develop and use advanced technologies, which then become available to follower countries

countries that adopt advanced technologies that previously were developed and used by leader countries

the capacity of an economy to combine resources effectively to achieve growth of real output that the supply factors make possible

is the amount of goods and services that a laborer produces in a given amount of time

when people become more productive in producing good by repeatedly producing the goods

as more consumers use a product, the value of the product rises;

doubling the input to increase the output

small business with advanced new technology

the highest point of a mountain temporarily

a period of decline in total output

the bottom of a recession or depression

a period which real GDP, income and employment rises

the total number of workers, including both the employed and the unemployed

= unemployed / labor force *100

those who drop out of the labor force in frustration because they can’t find work

unemployment that occurs when people search and wait a job

unemployment that occurs when workers’ skills do not match the jobs that are available

unemployment caused by a decline in total spending or recession

the normal rate of unemployment with full employment

The real output (GDP) occurs when an economy is fully employed

= actual GDP – potential GDP

For every 1% of unemployment rate exceeds the natural rate

Jobs, age, race and ethnicity, gender, education and duration

The rate of Inflation CPI = (Price of Market Basket for a Particular year / price estimate of the market basket) * 100

Inflation caused by an increase in demand more than capacity

When prices rise due to an increase in the cost of production.

= total input cost / total of output

The # of dollars received as rent, wages interest and profits

Income measured in terms of the goods and services it can buy Real Income = Nominal Income / Price Index(in hundredths)

inflation that comes as a surprise to individuals in the economy

the rate of inflation that most individuals believe will occur

Automatic adjustments of nominal income to the rate of inflation.

the percentage increase in the purchasing power borrowers pay to the lender.

the stated interest rate on a loan Nominal Interest Rate = real interest rate + inflation premium(is the expected rate of inflation)

a decline in the price level

When inflation is out of control

a reference line that consumption would equal disposable income; C=DI

consumption function that reflects direct consumption-disposable income relationship C = DI – S

“Savings function” savings S = DI- C

This is the income when consumption = disposable income C = D.I.

APC = Consumption / Income

APS = Saving / Income

MPC = Change in desired Consumption / Change in Income, MPC = C / DI

MPS = Marginal Propensity to Save – the change in one’s savings caused by the change in one’s income. MPS = change in savings (S) / change in income (I) MPS = C / DI

MPC is the slope of the consumption schedule MPS is the numerical value of the slope of the saving schedule Both Added together = 1

shifts the consumption schedule upward and the saving schedule downward

the annual rate of return that a firm expects to obtain through a capital investment. r = profit / total cost

The amount of investment forthcoming at each real interest rate It shifts based on the relationship between the interest rate and the amount of investment demanded

The assumption that a economy has room to expand = ratio of the change in Real GDP (RGDP) divided by the original change in spending that causes the change in GDP Multiplier = RGDP / C or 1 / MPS or 1 / 1 – MPC