the behavior of all households and firms together
3 things macroeconomics focus on
Determinants of total national income.
Aggregates of consumption and investment
Overall level of prices
prices that do not always adjust rapidly to maintain equality between quantity supplied and quantity demanded
total quantity of goods and services produced in an economy in a given period
from trough to peak with increased output&employment
peak to trough during which employment and output fall
Cash payments made by the gov to people who don't supply good, services, or labor in exchange.
Three Market Arenas
goods and services
Promissory notes issued by the federal government when it borrows money
promissory notes issued by firms when they borrow money
shares of stocks
financial instruments that give to the owner a share in the firm's ownership and therefore the right to share in the firm's profits
portion of a firm's profits that the firm pays out each period to its shareholders
Federal Reserve for
(affects interest rates)
both high inflation and high unemployment
the market value of all final goods and services produced within a given period of time by factors of production located within a country.
national income and product accounts
data collected and published by the government describing the various components of national income and output in the economy
total market value of all final goods and services produced within a given period by factors of production owned by a country's citizens, regardless of where the output is produced
total amount spent on all final goods and services during a given period
measures income recieved by all factors of production in producing final goods and services
3 things that equal each other
what is income
Expenditure approach formula
goods that firms produce now but intend to sell later.
Relationship between total production and total sales
GDP=Final sales+change in business inventories
capital stock at the end of period is...
capital at the beginning+net investment
the total income earned by the factors of production owned by a country's citizens
compensation of employees
income of unincorporated businesses
indirect taxes minus subsides
surplus of government enterprises
income of government enterprises
gross national product-depreciation
data measurement error
the total income of households
disposable personal income
personal income-personal income taxes
amount of disposable income left after personal spending
personal saving rate
the percentage of disposable personal income that's saved.
If personal saving rate low...
households are spending a large amount relative to income
in personal saving rate hight...
households spending cautiously
current prices we pay for goods and services
gross domestic product measured in current dollars
importance attached to an item within a group of items
year chosen for the weights in a fixed-weight procedure
uses weights from a given base year
2 limits of GDP concept
Social welfare isn't measured
Nonmarket activites not counted
does not reflect losses or societal ills
don't measure pollution
GNI (gross national income)
GNP converted to dollars using an average of currency exchange rates over several years adjusted for rates of inflation
do you know how to physically calculate (real GDP)
Can you re-create the circular flow diagram from scratch?