EconUnited - Unit 2 of Macroeconomics Slides
EconUnited - Unit 2 of Macroeconomics Slides
Macroeconomics
Contents of this slideshow
- GDP
- Limitations of GDP
- Real and Nominal GDP
- Unemployment
- Business Cycles
- Inflation
- Costs of Inflation
GDP
Gross Domestic Product
- GDP is a measure of the final output of a nation’s economy
- Total value of all new goods and services produced in an economy in a
given year
- Value added approach: Adding up all of the value added at various stages of production
- Final Goods: The goods and services that are purchased by consumers, businesses, the
government, or other countries in their final form for their intended final use
- Intermediate Goods: Goods that are used in the production of a final product
- Economic bads: Any outcome from economic activity that creates negative
value for society
Key Terms
- Real GDP per capita: The real gross domestic product of a nation, divided by
the nation’s population
- Unemployment rate
Key Terms
- Unemployment: When people are not working, but they are actively looking for
work
- Unemployed: A term that describes a person who could be working, and wants to
work, but is not working
- Unemployment rate: The percentage of the labor force that is unemployed
- Labor force: The number of people in a population who are either employed or
unemployed
- Eligible population: The eligible population in the US is anyone 16 years of age or
older who is not institutionalized (i.e., not in prison) and not in the military
- Labor force participation rate: The percentage of the eligible population that is in the
labor force
Key Terms
- Discouraged workers: People who do not have a job, but they will take a job if offered
one. However, they have given up looking for work, so they are not counted in the
labor force
- Underemployed: People who work part-time, but they really want to work full time if
they could find a full-time job
- Full employment output: The amount of output that is produced in an economy
when that economy is using all of its resources efficiently
- Natural rate of unemployment: The unemployment rate that exists when an economy
is producing the full employment output
Practice Problems
Answers
Business Cycles
The business cycle
- Output gaps
- Difference between actual output and potential
output in the business cycle
- Potential output is also called
full-employment output
Key terms
- Business cycle model: This model typically demonstrates an increase
in real GDP over the long run, combined with short-run fluctuations
in output
- Aggregate demand: The total demand for a nation’s output, including
household consumption, government spending, business
investment, and net exports
- Aggregate supply: The total supply of goods and services produced
by a nation’s businesses
- Recovery: When GDP begins to increase following a contraction and
a trough in the business cycle
- Growth trend: the straight line in the business cycle model, which is
usually upward sloping and shows the long-run pattern of change in
real GDP over time
- Positive output gap: The difference between actual output and
potential output when an economy is producing more than full
employment output
- Negative output gap: The difference between actual output and
potential output when an economy is producing less than full
employment output
Phases and turning points of the business cycle
Practice Problem
Answers
Inflation
Inflation
- Inflation is the general and ongoing rise in the level of prices in an economy
- Index number: A unit-free number derived from the price level over a
number of years that makes computing inflation rates easier
- Rate of inflation: Measured as the percentage change between price level
over time
- Price level: Measured by constructing a hypothetical basket of goods and
services
- Represents a typical set of consumer purchases
Changes in the cost of living
- Consumer Price Index(CPI): A measure of inflation calculated by US
govt statisticans based on price level from a fixed basket of goods
and services that represents the purchase of the average consumer