Macroeconomics Chapters 6-9 Test

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A decline in GDP and unemployment (2Q)

Measure that reflects the value of all goods and services produced in a given year, expressed in base-year prices.

Person can’t get a job and wants a job

Demand and Supply shocks

Unexpected change in demand of a good or service

Unexpected change in supply of a good or service

Resources devoted to increase future output

Borrow and Lend $

Trade-off current for future consumption

– Many prices are sticky in the short run
– Consumers prefer stable prices: BUDGET
– Firms want to avoid price wars

Price of a good or a service is not subject to bargaining.

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Gross Domestic Product – Measure of aggregate output

Difference between a country’s total value of exports and total value of imports.

Compensation of employees

income remaining after deduction of taxes and other mandatory charges

Available to be used when and how you decide

Value of goods and services produced during a year
– Corrects for price changes

Calculating GDP would be double counting

Products purchased for resale

Personal Consumption Expenditures (C) + Gross Private Domestic Investment (Ig) + Government Purchases (G) + Net Exports (Xn)

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Increase in real GDP or real GDP per capita

NO IDEA

Arithmetic of growth – the # of years required to double real GDP

– Ongoing increases in living standards
– Time for leisure
– Social change
– Democracy
– Human lifespan doubled

Demand and Efficiency Factor

Households, businesses, and government must purchase the economy’s expanding output

Use resources in least costly way

– Strong property rights – People wont invest if they are afraid something will get stolen
– Patents and copyrights
– Efficient financial institutions
– Literacy and widespread education
– Free trade
– Competitive market system

Real GDP = Hours of work X Labor Productivity

2.4%

– Growth is the path to greater material abundance
– Results in higher standards of living
– Increases leisure time
– Allows for the expansion and application of human knowledge

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Alternating increases and decreases in economic activity over time

– Peak: Business activity reaches max temperature
– Recession: A period of decline
– Trough: Lowest part of recession
– Expansion: Recovery

NEVER

– Involuntary part-time workers
– Discourage workers

– Frictional unemployment: Search/wait (individuals searching for jobs or waiting to take jobs soon)
– Structural unemployment: offshoring jobs (occurs due to changes in structure of demand for labor)
– Cyclical unemployment: Caused by recession

– Demand-Pull inflation
– Cost-Push inflation

Too much $ chasing too few goods
– Excess spending relative to output
– Central bank issues too much money

– Due to a rise in per-unit input costs
– Supply shocks: OIL (73-74? 79-80)

Union workers will get a raise when the CPI goes up

Every 1% of cyclical unemployment creates a 2% GDP gap: Actual unemployment rate exceeds the negative rate

Actual unemployment rate exceeds the negative rate