Macroeconomics Exam 2
Terms in this set (98)
Keeps track of the spending of consumers, sales of producers, business investment spending, and government purchases.
Where goods and services are bought by households from firms.
Where resources, especially capital and labor, are bought and sold.
Household spending on goods and services.
Shares in the ownership of a company.
Loans to firms in the form of an IOU that pays interest.
Payments that the government makes to individuals without expecting anything back in return.
The total income households have left after paying taxes and receiving government transfers.
Where individual, banks, and other institutions buy and sell stocks and bonds as well as make loans.
Goods and raw materials held to facilitate business operations.
Spending on new productive physical capital, such as machinery and inventory.
Final Goods and Services
Goods and services sold to the final, or end, user.
Intermediate Goods and Services
Goods and services that are inputs into the final production of final goods and services. Purchaser isn't the final user.
The total value of all final goods and services produced in an economy over a given amount of time.
The total spending on domestically produced final goods and services. Used to calculate GDP.
Three Ways to Calculate GDP
1) Add up total value of firms production of final goods and services, 2) Add up aggregate spending on domestically produced goods and services in an economy, 3) Sum the total factor income earned by households and firms in an economy.
The value of sales minus the value of the input purchases.
The difference between exports and imports in an economy.
The total quantity of final goods and services produced within an economy.
The GDP calculated using the prices of a selected base year.
The GDP at the current price level in the economy.
The method of calculating changes in real GDP divided by the size of the population.
GDP Per Capita
GDP divided by the size of the population- average GDP per person.
Method of calculating GDP by using the average between the GDP growth rate calculated by using an early base year and from late base year.
Someone who is actively looking for a job but isn't currently employed.
The sum of the employed and the unemployed.
Labor Force Participation Rate
The share of working-age people that is in the labor force.
The percentage of the total people in the labor force who are unemployed.
Non-working people who have given up looking for a job due to the state of the job market.
Marginally Attached Workers
Would like to employed and have looked for a job in the recent past but are not currently looking for work. They are not included in the unemployment rate.
People who work part time because they cannot find full time jobs.
Unemployment due to the time workers spend in the job search.
Unemployment that results when there are more people seeking jobs in a labor market than are available at the current wage rate.
Wages that employers set above the equilibrium wage rate as an incentive for better employee performance.
Natural Rate of Unemployment
The normal unemployment rate that combines structural and frictional unemployment.
The deviation of the actual rate of unemployment from the natural rate.
The wage rate divided by the price level.
Income divided by price level
The percent increase in the overall level of prices per year.
The increased costs of transactions caused by inflation. This arises from people trying to avoid holding money.
The costs of changing listed prices during periods of inflation.
Unit of Account Costs
The costs that arise from inflation when money stops being a reliable form of measurement.
Nominal Interest Rate
The actual interest rate one pays for a loan, unadjusted for inflation.
Real Interest Rate
The nominal interest rate adjusted for inflation, found by subtracting the inflation rate from the nominal interest rate.
The process of bringing the inflation rate back down.
Aggregate Price Level
A measure of the overall level of prices in an economy.
A hypothetical set of consumer purchases of goods and services.
A measure of the cost of purchasing a given market basket in a given year. This value is normalized to equal 100 on the base year.
Consumer Price Index
Measures the cost of a market basket for the typical urban family in America.
Producer Price Index
Measures the changes in a typical market basket of goods and services purchased by producers.
Is equal to 100 times the ratio of nominal GDP to real GDP in that year.
Marginal Propensity to Consume
The increase in consumer spending when disposable income rises by a dollar.
Marginal Propensity to Save
The increase in household savings when disposable income rises by a dollar.
Autonomous Change in Aggregate Spending
The initial rise or fall in aggregate spending that is the cause, not the result, of a series of income and spending changes.
The ratio of the total change in real GDP caused by an autonomous change in aggregate spending to the size of that autonomous change.
An equation showing how individual household's consumer spending varies with households current disposable income.
Autonomous Consumer Spending
The amount of money a household would spend if it had no disposable income.
Aggregate Consumption Function
The relationship for the economy as a whole between current disposable income and aggregate consumer spending.
Causes of Shifts in Aggregate Consumption Function
1) Changes in Expected Future Disposable Income, 2) Changes in Aggregate Wealth
Life Cycle Hypothesis
Consumers plan their spending over their lifetime, not just in response to current disposable income.
Planned Investment Spending
The investment spending that firms intend to undertake in a given period. Dependent on the interest rate, the expected level of future GDP, and the current level of production capacity,
Stocks of goods held to satisfy future sales.
The value of the change in total inventories held in the economy during a given period.
Unplanned Inventory Investment
Occurs when actual sales are less than businesses expected, leading to unplanned increases in inventories. Sales in excess of expectations result in negative unplanned inventory investment.
Actual Investment Spending
Equal to planned investment spending plus unplanned investment spending.
Aggregate Demand Curve
A curve that shows the relationship between the aggregate price level and the quantity of output demanded.
Wealth Effect of Change in Aggregate Price Level
The change in consumer's spending caused by the altered purchasing power of a consumer's assets.
Interest Rate Effect
The change in investment and consumer spending caused by altered interest rates that result from changes in the demand for money.
Causes of Aggregate Demand Shifts
Changes in Expectations, Changes in wealth, and the size if the existing stock of physical capital.
The use of government spending in the form of government transfers, government purchases, or tax policy to stabilize the economy.
The central bank's use of changes in the quantity of money or the interest rate to stabilize the economy.
Aggregate Supply Curve
Shows the relationship between an economy's aggregate price level and the total quantity of final goods and services that producers are willing to supply.
The dollar amount of the wages paid.
Nominal wages that are slow to fall, even in the face of high unemployment and slow to rise, even in the face of labor shortages.
Perfectly Competitive Market
Producers take the price as given in the market.
Imperfectly Competitive Market
Producers have some ability to choose what they charge in the market.
Short-Run Aggregate Supply Curve
Shows the relationship between the aggregate price level and the quantity of aggregate output supplied that exists in the short run, the time period when many production costs should be taken as fixed.
Causes of Short-Run Aggregate Supply Shifts
Changes in Commodity Prices, Changes in Nominal Wages, and Changes in Productivity
Long-Run Aggregate Supply Curve
Shows the relationship between the aggregate price level and the quantity of aggregate output supplied that would exist if all prices, including nominal wages, were fully flexible.
The level of real GDP the economy would produce if all prices, including nominal wages, were fully flexible.
Causes of Long-Run Aggregate Supply Shifts
Increase in quantity of resources, increase in quantity of resources, technological progress.
The aggregate supply curve and the aggregate demand curve are used together to understand economic fluctuations.
Short -Run Macroeconomic Equilibrium
When the quantity of aggregate output supplied is equal to the quantity demanded.
An event that shifts the demand curve, such as a change in expectation or wealth, the size of existing capital, or the use of fiscal or monetary policy.
An event that shifts the short-run supply curve, such as changes in commodity prices, nominal wages, or productivity.
The combination of inflation and falling aggregate output.
Long-Run Economic Equilibrium
When the point of short-run macroeconomic equilibrium is on the long-run aggregate supply curve.
When the aggregate output is below the potential output.
When aggregate output is above potential output.
The percentage difference between the actual aggregate output and the potential output.
Shocks to the aggregate demand affect aggregate output in the short run, but not the long run.
The use of government policy to reduce the severity of recessions and rein in excessively strong expansions.
Government programs intended to protect families against economic hardship.
Expansionary Fiscal Policy
Policy to increase aggregate demand by increasing purchases of goods and services, cutting taxes, or increasing government transfers.
Contractionary Fiscal Policy
Policy to reduce aggregate demand by reducing government purchases, increasing taxes, and reducing government transfers.
Taxes that don't depend on the tax payer's income.
Government spending and taxation rules that cause fiscal policy to be automatically expansionary when the economy contracts and automatically contractionary when economy expands.
Discretionary Fiscal Policy
Fiscal policy that is the result of deliberate actions of policy makers rather than rules.