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Econ 100B Wood Chapter 1
The Policy and Practice of Macroeconomics
20
Economics
Undergraduate 3
12/30/2014

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Term
Macroeconomics
Definition
The study of economic activity and prices in the overall economy of a nation or region.
Term
Microeconomics
Definition
Looks at behavior of individual firms, households, or markets.
Term
Economic Theory
Definition
A logical framework to explain a particular economic phenomenon
Term
Economic Model
Definition
A simplified representation of the economic phenomenon that takes a mathematical or graphical form.

Explain/ illustrate a complex economic concept through a mathematical or graphical form.
Term
5 Steps of a Economic theory or model
Definition
1. Identify an interesting economic question. (EX: why is U going up or down)
2.Specify the variables to be explained by the model, as well as the variables that explain them.
Term
Exogenous Variables
Definition
A set of factors not explained by the model that are used to explain the endogenous variables.
Term
Endogenous Variables
Definition
A variable that a macroeconomics wants to explain inside his or her model.
Term
Real GDP (Real Gross Domestic Product)
Definition
Measures the output of actual goods and services produced in an economy over a fixed period, usually a year.

*Real GDP also equals the total amount of real income of every person and firm in the economy.
Term
Business Cycle
Definition
Represents recurrent up and down movements in economic activity that differ in how regular they are.
Term
Recession
Definition
When economic activity declines and real GDP per person falls.
Term
Depression
Definition
When decline of real GDP is severe.
Term
Unemployment Rate
Definition
Measures the percentage of workers looking for work, but do not have jobs, at a particular point in time.

Unemployment Rate = Unemployment total/labor force * 100

3 requirements
Not Working
Able to work
Looking for work
Term
Inflation/Inflation Rate
Definition
Shows us how rapidly the overall level of prices is rising.
Term
Hyperinflation
Definition
Extremely high inflation

Ex Zimbabwe
Term
Government Budget Deficits
Definition
An excess of government spending relative to revenue

Ex 2007-2009
Term
Fiscal Policy
Definition
Policy makers decision to raise taxes, cut government spending or both
Term
Central Banks
Definition
The job of keeping inflation in check is a core responsibility. Along with the US Federal Reserve.

Central Banks oversee banking systems
Term
Financial crisis
Definition
A large scale disruption in financial markets characterized by sharp declines in prices of assets (Property that includes bonds, stocks,art land etc)and business failures.
Term
Assets
Definition
Property that includes bonds, stocks,art land etc
Term
Stabilization Policy
Definition
A goal of macroeconomics in which attempts to minimize business cycle fluctuations and stabilize economic activity.
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