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macroeconomic goals
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The three primary macroeconomic policy goals are economic growth, low unemployment and low inflation.
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Steady economic growth
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An economy can reach a steady state after a period of growth or after a period of downsizing or degrowth.
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Stable prices
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the general price level in an economy does not change much over time.
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Full employment
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the level of employment reached when there is no cyclical unemployment
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GDP (Gross Domestic Product)
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total value of goods produced and services provided in a country during one year.
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consumer spending
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an exchange of money for goods and services.
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investment
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n. the act of putting money, effort, time, etc. into something to make a profit
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Government Spending
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includes spending by all levels of government on final goods and services
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net exports
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the value of a country's exports minus the value of its imports
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unemployment rate
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the percentage of the labor force that is unemployed
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Consumer Price Index (CPI)
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an index of the variation in prices paid by typical consumers for retail goods and other items.
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Inflation
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a general increase in prices and fall in the purchasing value of money.
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Real GDP
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GDP adjusted for inflation
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Aggregate Supply
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the supply of all goods and services by all producers in the economy
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Aggregate Demand
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the sum of all the demand in the economy
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unanticipated inflation
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An increase of the price level (inflation) at a rate greater than expected.
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Types of unemployment
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frictional, structural, cyclical, seasonal
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Seasonal unemployment
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The unemployment that arises because of seasonal patterns
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structural unemployment
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unemployment that occurs when workers' skills do not match the jobs that are available
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Cyclical Unemployment
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unemployment that rises during economic downturns and falls when the economy improves
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frictional unemployment
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unemployment that occurs when people take time to find a job
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Stages of the business cycle
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expansion, peak, contraction, and trough.
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Peak
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highest point between the end of an economic expansion and the start of a contraction in a business cycle.
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Contraction
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a period of economic decline marked by falling real GDP
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Recession
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A slowdown in a nation's economy
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Depression
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a period of low economic activity and rising unemployment
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Trough
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the lowest part of a transverse wave
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Recovery/Expansion
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when the economy moves from a trough to a peak.
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Functions of Money
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Medium of exchange, store of value, unit of account
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medium of exchange
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anything that is used to determine value during the exchange of goods and services
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store of value
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an item that people can use to transfer purchasing power from the present to the future
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unit of account
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the yardstick people use to post prices and record debts
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Federal Reserve System
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the central bank of the United States
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12 districts of the fed
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Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco.
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Federal Open Market Committee (FOMC)
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monetary policymaking body of the Federal Reserve System.
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Board of Governors
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the seven-member board that oversees the Federal Reserve System
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monetary policy
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the setting of the money supply by policymakers in the central bank
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Tools of Monetary Policy
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discount rate, reserve requirements, and open market operations.
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Reserve Requirement
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The amount of money banks are required to keep in their vault on a daily basis
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discount rate
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The interest rate on the loans that the Fed makes to banks
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open market operations
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The buying and selling of government securities to alter the supply of money
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Interest on reserves
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rate at which the Federal Reserve Banks pay interest on reserve balances, which are balances held by DIs at their local Reserve Banks.
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Federal reserves dual mandate
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operated under a mandate from Congress to "promote effectively the goals of maximum employment, stable prices, and moderate long term interest rates
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fiscal policy
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Government policy that attempts to manage the economy by controlling taxing and spending.
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budget deficit
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a shortfall of tax revenue from government spending
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budget surplus
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an excess of tax revenue over government spending
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