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Ch. 1 The Science of Macroeconomics

Terms in this set (18)

macroeconomics
studies the forces that influence the economy as a whole
Real GDP
measures the total income of everyone in the economy (adjusted for the level of prices), tends to grow over time, not a steady growth
inflation rate
measures how fast prices are rising
unemployment
measures the fraction of the labor force that is out of work
recession
a mild decrease in real GDP
depression
a severe decrease in real GDP
deflation
period of falling prices
models
used by economists to illustrate, often in mathematical terms, the relationships among the variables
endogenous variables
those variables that a model tries to explain
exogenous variables
those variables that a model takes as given
market clearing
the assumption that markets are normally in equilibrium, so the price of any good or service is found where the supply and demand curves intersect
Although market-clearing models assume that all wages and prices are flexible, in the real world some wages and prices are...
sticky
microeconomics
the study of how households and firms make decisions and how these decisionmakers interact in the marketplace
optimization
a central principle of microeconomics- the idea that households and firms do the best they can for themselves given their objectives and the constraints they face
utility
households choose their purchases to maximize their level of satisfaction
profits
firms make production decisions to maximize their...
models with flexible prices describe the...
long-run
models with sticky prices describe the...
short-run
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