Term
|
Definition
| study of the economy as a whole. Compare to microeconomics, which studies economic activity at the business-level. |
|
|
Term
| Other differences between macroeconomics and microeconomics |
|
Definition
| a. Individuals paying taxes to the government isn’t studied in micro, but it is in macro. b. The foreign sector is relevant in macroeconomics because of imports and exports. |
|
|
Term
| nominal gross domestic product (GDP) |
|
Definition
| total output of final goods and services produced in the domestic market during a period (usually one year). Calculated w/out regard to ownership of productive resources. |
|
|
Term
| real GDP/ total expenditures |
|
Definition
| total output of final goods and services produced in the domestic market during the period using constant prices. Real GDP is nominal GDP adjusted for changing prices. |
|
|
Term
|
Definition
| GDP - depreciation or capital consumption |
|
|
Term
|
Definition
| maximum output that can occur in the domestic economy without creating upward pressure on the general level of prices |
|
|
Term
|
Definition
| difference between real GDP and potential GDP; goods not produced and services not provided by idle workers |
|
|
Term
| gross national product (GNP) |
|
Definition
total output of all goods and services produced world-wide using U.S. resources.
Calculated by the Bureau of Economic Analysis (subset of U.S. Dept. of Commerce). |
|
|
Term
| net national product (NNP) |
|
Definition
| the total output of all goods and services world-wide using U.S. resources, but does NOT use a depreciation value. It’s the same as GNP - depreciation |
|
|
Term
|
Definition
| total payments for economic resources included in the production of all goods and services which include payments for wages, rents, interest, and profits |
|
|
Term
|
Definition
| measures the total payments for economic resources received by individuals |
|
|
Term
| personal disposable income (PDI) |
|
Definition
PDI = PI - income taxes. PDI = APC + APS.
PDI or DI is divided between (a) consumption and interest payments and (b) savings. |
|
|
Term
| Who is included in unemployment calculations? What is the cutoff age? |
|
Definition
| Workers 16 years old and older. |
|
|
Term
|
Definition
| loss of jobs due to economic downturn (total unemployment - natural unemployment) |
|
|
Term
|
Definition
| loss of jobs due to loss of or downsizing of industry |
|
|
Term
|
Definition
| due to workers leaving voluntarily for different jobs |
|
|
Term
| aggregate demand/expenditure (AE) or (AD for the AD-AS model) |
|
Definition
| total spending of individuals, businesses, governments, and net foreign spending on goods and services at different prices at the economy level |
|
|
Term
| How do increased imports affect the AE curve? |
|
Definition
| Shift it to the left because demand for domestic products decreases. |
|
|
Term
| How do increased tax rates affect the AE curve? |
|
Definition
| Shift it to the left because demand decreases when PDI decreases due to increased taxes. |
|
|
Term
|
Definition
| total output of goods and services at different price levels at the economy level |
|
|
Term
| How would a decrease in the labor supply affect the AS curve? |
|
Definition
| A large decrease in an economy’s labor force would most likely shift the aggregate supply curve left (lower it), because labor is an economic resource and would affect overall supply by lowering it. |
|
|
Term
| What is investing in macroeconomics? |
|
Definition
| Investing includes residential and nonresidential construction, business durable equipment, and business inventory. |
|
|
Term
| What is saving in macroeconomics? |
|
Definition
| Putting money into banks, stocks or bonds. What we would normally call "investing" in layman's terms. |
|
|
Term
| average propensity to consume (APC) |
|
Definition
| % of PDI spent on consumption goods |
|
|
Term
| average propensity to save (APS) |
|
Definition
|
|
Term
|
Definition
inflation- sustained increase in the general level of prices. The reported rate of inflation is therefore an average of the increase across all prices in the economy.
deflation- general decrease in prices |
|
|
Term
| Consumer Price Index (CPI) |
|
Definition
| compares relative price changes over time (comparing the market basket's price this year relative to the base year (1982-84)). Also, it is used by the federal govt. to measure inflation. |
|
|
Term
| What does inflation do to income? |
|
Definition
| Inflation distorts reported income because depreciation is not reflective of current fixed-asset replacement costs. |
|
|
Term
| What does the Fed do to expand the economy? What does it do to contract the economy. |
|
Definition
| To expand, buy government bonds, thereby pumping money into the economy. Also, lower the discount rate. To contract, sell government bonds to take money out of the economy, and raise the discount rate. |
|
|
Term
|
Definition
| rate at which the Fed loans money to banks. If banks pay lower interest, they loan more, which increases the money supply and thereby expands the economy. |
|
|
Term
|
Definition
| rate at which banks loan money to each other |
|
|
Term
|
Definition
| established by Congress and deals with government spending (G) and taxes (T) |
|
|
Term
|
Definition
| controlled by the Fed and deals with achieving national objectives through control of the money supply, inflation, and the real interest rate. |
|
|
Term
|
Definition
| movement toward a more integrated and interdependent world economy |
|
|
Term
|
Definition
| main objective is to promote general economic development worldwide, and focusing on lending to developing countries for infrastructure |
|
|
Term
| International Monetary Fund (IMF) |
|
Definition
| maintain order in the international monetary system, mainly by providing funds to economies in financial crisis |
|
|
Term
| foreign direct investment |
|
Definition
| a domestic entity invests in foreign production facilities |
|
|
Term
| General Agreement on Tariffs and Trade (GATT) |
|
Definition
| setup to encourage international trade by eliminating tariffs, subsidies, import quotas, and other trade barriers |
|
|
Term
| Do imports and/or exports factor into GDP calculations? |
|
Definition
| Yes. Exports - imports factor into GDP calculations. |
|
|
Term
|
Definition
| U.S. exports more agricultural services than it imports, but it imports more mfg. goods and industrial materials than it exports. U.S. exports make up about 10% of worldwide exports. |
|
|
Term
| World's three largest exporters |
|
Definition
| Largest is China, followed by Germany, and the U.S. |
|
|
Term
| risks of outsourcing production overseas |
|
Definition
| quality risks, security risk, and currency exchange risks. |
|
|
Term
|
Definition
GDP is sum of all expenditures in the economy
C + I + G + NX |
|
|
Term
|
Definition
| More complex, but also produces national income and net domestic product; arrives at same total GDP as does expenditures approach. |
|
|
Term
| net domestic product (NDP) |
|
Definition
| income generated in U.S. no matter who owns the resources that generated it |
|
|
Term
|
Definition
| capital consumption allowance added back to NDP to derive GDP in the income approach |
|
|
Term
|
Definition
| nominal GDP / CPI (in hundredths) |
|
|
Term
|
Definition
| economy is at or near full employment and at or near maximum output for the current level of resources and technology. |
|
|
Term
|
Definition
| defined as a period during which real GDP falls and unemployment rises. |
|
|
Term
|
Definition
| If the recession is severe enough, prices will fall (deflation) and the phase will be considered a depression. |
|
|
Term
|
Definition
| economy reaches the lowest ebb |
|
|
Term
|
Definition
| output and employment rise. Eventually, the price level rises also (inflation). |
|
|
Term
| Stalin's Red Influence Promoted Communism (national income (NI)) |
|
Definition
salaries and wages
rents
interest
proprietor and partnership incomes
corporate profits |
|
|
Term
| I Bought Two Nets For Fishing Income (NDP) |
|
Definition
Indirect business taxes and net foreign factor income.
NDP = GDP – capital consumption allowance (amount of capital stock consumed in the process of generating income (depreciation of capital)) |
|
|
Term
| income approach calculation |
|
Definition
salaries and wages
rents
interests
proprietor and partnership incomes
corporate profits
NI
indirect business taxes
net foreign factor income
NDP
capital consumption allowance/depreciation
GDP |
|
|
Term
| causes of a recession (CIM) |
|
Definition
consumer confidence declines
innovations have a destabilizing effect on the economy
miscalculation in fiscal or monetary policy. |
|
|
Term
| Creativity Increases Germany's Net eXports |
|
Definition
C- largest portion; determine by incomes
I- most volatile portion; inversely related to interest rate
G- transfer payments; Soc. Sec. not included)
Net exports (NX) = exports (X) – imports (M) |
|
|
Term
| leading vs. lagging indicators |
|
Definition
| Economists using leading economic indicators for forecasts and lagging indicators report past economic activity. |
|
|
Term
| leading vs. lagging indicators |
|
Definition
| Economists using leading economic indicators for forecasts and lagging indicators report past economic activity. |
|
|
Term
| leading indicators (GDP in same direction) |
|
Definition
Avg. workweek for mfg. workers
New orders for consumer goods
New orders for nondefense capital goods
Building permits for houses
Stock prices
The money supply
Spread between short-term and long-term interest rates
Consumer expectations |
|
|
Term
| Leading indicators (GDP in opposite direction) |
|
Definition
Initial claims for unemployment insurance
Vendor performance |
|
|
Term
|
Definition
| change in real GDP over a period of time (real GDP growth > population growth = rising standard of living), or as increase in real GDP over a period of time. |
|
|
Term
| How are the short- and long-run AD curves distinguished? |
|
Definition
| Short- and long-run not distinguished. |
|
|
Term
| How are the short- and long-run AS curves distinguished? |
|
Definition
Short-run- upward slope. Curve rises gradually as more inputs are added to the production process.
Long-run- vertical, or inelastic. Any change in price level is matched by a change in wages when the economy is in full employment. |
|
|
Term
| WASP (determinants of supply (AS)) |
|
Definition
-Workforce competence = more education and training = more productivity
-Amount of capital. more capital = more automation = more productivity.
-State of technology = more technology = more productivity.
-Productivity (real GDP / hours worked). More work per hour = more productivity. |
|
|
Term
| factors in economic growth |
|
Definition
Supply factors- increase in productivity and increase in the quantity and quality of natural resources
Demand factors- increase in total spending (someone has to buy the additional output produced)
Efficiency factor- efficient allocation of resources |
|
|
Term
|
Definition
| The government can deploy the tools of fiscal policy and monetary policy to either stimulate or suppress demand. |
|
|
Term
|
Definition
| the government can also implement policies to increase the country's stock of investment capital. Business use this capital to increase their productive capacity, thereby stimulating aggregate supply. |
|
|
Term
| purchasing power of money |
|
Definition
| measured by how many goods and services can be acquired in exchange for your money |
|
|
Term
| How is inflation stated and calculated. |
|
Definition
rate of inflation stated in % terms, calculate using a price index.
Inflation rate calculation: (current-yr. price index - prior-yr. price index) / prior-yr. price index |
|
|
Term
|
Definition
| (cost of market basket in current year / cost of market basket in base year) * 100 |
|
|
Term
| Who calculates the CPI? How often? |
|
Definition
| Bureau of Labor Statistics. Monthly. |
|
|
Term
|
Definition
| amount of money received by a consumer as wages, interest, rent, and profits. |
|
|
Term
|
Definition
| purchasing power of the income received, regardless of how its was denominated. Real income shrinks when nominal income does not keep pace with inflation. |
|
|
Term
| Effects of inflation on the macroeconomy |
|
Definition
When inflation is unexpected, it can cause economic chaos.
The efficiency of business relationships is reduced. Such efficiency relies on stable pricing. |
|
|
Term
| In what areas does inflation affect financial reporting? |
|
Definition
| inventory and depreciation |
|
|
Term
|
Definition
| When prices are rising, CoGS is increased and operating income is decreased, so income taxes are also decreased. |
|
|
Term
|
Definition
| If FIFO is used, CoGS consists of older, less costly inventory during times of inflation thereby boosting operating income. |
|
|
Term
|
Definition
| Depreciable base of a long-lived asset is its historical cost. When prices are rising, the amounts reported as depr. exp. are thus considerably lower than they would be if stated in terms of replacement costs. Reported operating income is higher in the current period, but replacing such assets as they are retired is more expensive. |
|
|
Term
|
Definition
| demand outpaces the supply of goods to satisfy it. Occurs when economy approaches full employment and demand continues to increase. |
|
|
Term
|
Definition
| generated by increased per-unit production costs, which are passed on to consumers in the form of higher prices |
|
|
Term
|
Definition
| slow economic growth is accompanied by high inflation |
|
|
Term
|
Definition
| (# of unemployed / size of labor force) * 100. This rate is generated from the Current Population Survey, a monthly survey of households conducted by the U.S. Census Bureau on behalf of the Bureau of Labor Statistics. Full and part-time employees are considered equally employed. |
|
|
Term
| groups excluded from unemployment rate calculations |
|
Definition
Those under 16 and/or incarcerated or institutionalized.
The second group excluded from the size of the labor force consists of those classified as not in the labor force. |
|
|
Term
| to be unemployed means to be... |
|
Definition
| willing and able to work and seeking employment. |
|
|
Term
| primary economic cost of unemployment |
|
Definition
| lost value to the economy (GDP gap) is the primary economic cost of unemployment; the goods not produced and services not provided by idle workers can never be regained. |
|
|
Term
| social costs of unemployment |
|
Definition
| loss of skills, personal and family stress, violence and other crime and social upheaval. |
|
|
Term
|
Definition
| government acts as one of the players in the marketplace, taking in revenues (taxes) and making purchases (the annual budget). |
|
|
Term
| discretionary fiscal policy |
|
Definition
| involves spending that is under the control of individuals within the government |
|
|
Term
| nondiscretionary fiscal policy |
|
Definition
| that which is enacted in law |
|
|
Term
|
Definition
| tax policy, govt. spending, transfer payments |
|
|
Term
|
Definition
| calls for expansionary fiscal policy during times of recession (to stimulate AD) and contractionary policy during boom (overheated) times (to prevent inflation). |
|
|
Term
| expansionary fiscal policy |
|
Definition
| Cut taxes, increase govt. spending, increase transfer payments. (do the opposite in contractionary fiscal policy) |
|
|
Term
|
Definition
| amount by which the economy's AE at the full-employment GDP exceed those that are necessary to achieve the full-employment GDP. |
|
|
Term
|
Definition
| medium of exchange, unit of account, store of value |
|
|
Term
|
Definition
| amount paid back to lender in addition to sum that was borrowed as compensation to the lender for having made the loan. |
|
|
Term
| determinants of loan interest rate |
|
Definition
| prime rate and the creditworthiness of the borrower. |
|
|
Term
|
Definition
| nominal interest rate - inflation rate. |
|
|
Term
|
Definition
| charged to compensate for lost purchasing power due to inflation. |
|
|
Term
|
Definition
| most liquid forms of money (currency and checking accounts) |
|
|
Term
|
Definition
| includes M1 and less liquid forms of money |
|
|
Term
|
Definition
| gradual, steady economic growth with price stability (manageable inflation (2-3%)) |
|
|
Term
| tools of monetary policy (OFD) |
|
Definition
open-market operations-purchase Treasury securities (to loosen the money supply for predicted recession (inject money) and take securities off the market (fed. funds rate falls)), or sell Treasury securities (to tighten the money supply for predicted high inflation and give securities in exchange (fed. funds rate rises))
federal funds rate- rate at which banks loan to each other to keep each other above the required reserve ratio
discount rate- rate at which the Fed loans money to commercial banks short-term |
|
|
Term
| How does the Fed change the money supply through the reserve ratio? |
|
Definition
| To loosen the money supply, required reserve ratio lowered so banks can loan out more of their reserves and create more money. To tighten it, reserve ratio raised. |
|
|
Term
| effects of increased discount rate |
|
Definition
| Increased disc. rate = fewer borrowings = decreased money supply; vice versa. |
|
|
