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macroeconomics
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the study of the economy as a whole
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basic purposes of macroeconomic theory
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explain the business cycle and control the business cycle with policy
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standard of living
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a measure of the material wealth available to help people live comfortably
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quality of life
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a broader measure of citizens' comfort and satisfaction that comes from standard of living but also other subjective sources
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the three basic measures of the macro performance of the economy
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GDP growth, unemployment, inflation
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gross domestic product
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the total value of all final goods and services produced within a given time period
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final goods and services
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goods and services purchased by their ultimate consumer rather than by a firm for use in producing something else
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intermediate goods
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goods purchased by firms that either become part of another good or are used in the production of a good
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four categories used to calculate GDP
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consumption spending by households, investment spending by firms, government spending on goods and services, net exports (exports - imports)
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simplified GDP formula
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C + I + G + (exports - imports)
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consumption spending by households
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durable goods, non-durable goods, services
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durable goods
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greater than 3 year life
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non-durable goods
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purchased frequently
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net exports
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can be negative or positive, has been negative for many years
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nominal values
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the actual amount paid or received for a good or service
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purchasing power
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the value of an amount of money expressed in terms of what one could buy with it
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inflation
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an increase in the general price level of goods and services
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deflation
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a decrease in the general price level of goods and services
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real value
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a nominal value adjusted to remove the effects of inflation
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how is nominal GDP measured?
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in current prices
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real GDP
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the inflation-adjusted value of GDP or the value of output measured in constant prices
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change in nominal GDP is due to...
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changes in both prices and output
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change in real GDP is due to...
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a change only in output
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business cycle
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the alternation between expansions and contractions in the economy's level of output
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peak
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the transition from an expansion to a contraction in the economy
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trough
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the transition from a contraction to an expansion in the economy
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recession
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a significant decline in economic activity spread across the economy, dating at least 6 months
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depression
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an economic downturn loosely defined as a 10 percent or more decrease in output over a year
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boom
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a time of great expansion in economic activity
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real GDP per capita
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real GDP divided by the number of people in the population
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per capita GDP formula
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GDP / total population
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to attain growth in GDP per capita, the economy needs...
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a higher rate of GDP growth than population growth
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if GDP growth > population growth, then per capita GDP...
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increases
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if GDP growth < population growth, then per capita GDP...
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decreases
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hyperinflation
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a period characterized by very high rates of inflation
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consumer price index (CPI)
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a measure of variation in the overall price level of goods and services purchased by typical consumers
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CPI formula
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current year price / base year price
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inflation rate formula
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[(CPI year 2 / CPI year 1) - 1 ] x 100
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labor force
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everyone who is aged 16 or older and employed
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unemployment rate
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the percentage of the labor force that is unemployed
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discouraged workers
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people who are willing and able to work and have looked for a job for the past year but have not looked for a job in the past four weeks
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underemployed workers
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people who are working fewer hours than they want
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unemployment rate formula
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number of unemployed / number in labor force
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frictional unemployment
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unemployment caused by the need for workers and employees to spend time searching for each other
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structural unemployment
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unemployment caused by a mismatch between the skills workers have and the skills employers seek
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cyclical unemployment
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unemployment caused by contradictions in the economy
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seasonal unemployment
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unemployment caused by a change in the need for workers due to a change in the seasons
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full employment
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the level of employment when there is no cyclical unemployment
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natural rate of unemployment
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the unemployment rate when there is full employment in the economy
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