Principles of Macroeconomics Chapter 5 – 8

the cycle of short-term ups and downs in the economy

the total quantity of goods and services produced in an economy in a given period

a period in which aggregate output declines for two consecutive quarters

a prolonged and deep recession

a period during which output and employment grow

an increase in the overall price level

The value of a currency expressed in terms of the amount of goods or services that one unit of money can buy.

a period of very rapid increases in the overall price level

a decrease in the overall price level

a diagram showing the income received and payments made by each sector of the economy

government policies concerning taxes and spending

fiscal policy that intends to increase output (GS↑ TAX↓)

fiscal policy that intends to decrease output (GS↓ TAX↑)

the tools used by the Federal Reserve to control the quantity of money, which in tern affect interest rates

the period of severe economic contraction and high unemployment that began in 1929 and continued throughout the 1930’s

a situation of both high inflation and high unemployment

goods and services produced for final use

goods that are produced by one firm for use in further processing by another firm

the difference between the value of goods as they leave a stage of production and the cost of the goods as they entered that stage

the total value of all final goods and services produced within a country

the total value of all final goods and services produced by its nationals (= GDP + NFIA)

a method of calculating GDP that measures the total amount of spent on all final goods and services during a given period (GDP = C + I + G (EX – IM))

a method of computing GDP that measures the income received by all factors of production in producing final goods and services

a method of computing GDP that avoids intermediate goods and transfer payments

the goods that firms produce now but intend to sell later

the amount by which an asset’s value falls in a given period

final sales + changes in business inventries

gross investment – depreciation

exports – imports

the total income earned by the factors of production owned by a country’s citizen (= NNP – Statistical discrepancy)

wages, salaries, and various supplements

gross national product minus depreciation; a nation’s total product minus what is required to maintain the value of its capital stock

data measurement error

the total income of households

personal income – personal income taxes

the amount of disposable income that is left after total personal spending in a given period

GDP measured in a current national currency

GDP measured in the price of the base year

the year chosen for the weights in a fixed-weight procedure

nominal GDP / real GDP × 100

GDP and social welfare, the underground economy, illegal activity, per capita

employed + unemployed

labor force + not in labor force

the ration of the number of people unemployed to the total number of people in the labor force

the portion of unemployment that is due to the normal turnover in the labor market; used to denote short-run job/skill matching problems

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

unemployment that is above frictional plus structural unemployment (recession → decrease in aggregate output → ?)

the rate of unemployment when the labor market is in eqilibrium

when individuals know inflation is coming, and how to deal with it

when individuals do not know inflation is coming

inflation caused by consumers’ demand

inflation caused by costs of productions

(CPI present – CPI past) / CPI past

a price index computed each month by the Bureau of Labor Statistics using a bundle that is meant to represent the “market basket” purchased monthly by the typical urban consumer

measures of prices that producers receive for products at all stages in the production process

aggregate income = aggregate output = real GDP

the fraction of a change in income that is consumed, or spent. (= slope of consumption function = △C / △Y)

the part of aggregate income that is not consumed (= Y – C)

something that is always true

the fraction of a change in income that is not consumed (△S / Y△)

MPC + MPS

the proportion of Yd that is consumed (C/Yd)

those additions to capital stock or inventory that are planned by firms

the total amount the economy plans to spend in a given period. (C + I)

when Y = AE (Y = C + I)

Milton Friedman’s contribution that consumption is a function of permanent income and NOT current income

the contribution of Ando and Modigliani that consumption is related to income over the entire lifetime of an individual

graphical approach, algebraic approach, and saving-investment approach(leakage/injection approach)

the ration of the change in the equilibrium level of output to a change in some exogenous variable (1/1-MPC)

a variable that is assumed not to depend on the state of the economy- that is, it does not change when the economy changes