Download Macroeconomics: examines the economy as a whole

Economics – Chapter 12 and 13
Student Notes
Macroeconomics: examines the economy as a __________
Microeconomics: examines the actions of_______________ and single markets
Gross Domestic Product (GDP)
Market value of all final goods and services produced within a ________ in a given time
Components of GDP:
 __________ product (Shirt not the fabric)
 Produced during the time period (Even if not sold)
 Good or service produced _________nation's borders
Calculating GDP:
Group final products into________ sectors of the economy
Consumption (C) - spending by households
_____________ (I) - Fixed investment (equipment, tools); inventory investment (unsold goods
on hand)
Government Spending (G) - spending of federal, _______, and local governments
Net Exports (X) - exports ________ imports
C+I+G+X=GDP
Nominal GDP: stated in ________________ for the year in which the GDP was measured
 Problem with nominal GDP - prices go ____ without adding value
Real GDP: nominal GDP adjusted for changes in __________(more accurate measure of
economic performance)
What GDP Does Not Measure:
______________ activities - homemakers; volunteer work
Underground economy - __________activities (ex. drug dealing; smuggling); non-declared
services (taking cash for payment and not reporting); 8-10% estimated GDP
Quality of Life - does not show how goods and services are ______________ (10% of US
population in poverty)
Other Economic Performance Measures:
Gross National Product: market value of all final goods and services produced by a county
(GDP = GNP + plus income from goods and services produced by U.S. companies and citizens
in ______________________ minus the income foreign companies and citizen earn here)
Disposable Personal Income: personal income __________ taxes (money available for
consumer spending)
Business Cycle: a series of expanding and contracting economic activity (measured by
increases or decreases in real GDP)
Stage 1: Expansion - an ___________ in a nation's real gross domestic product (longest
expansion - 10 years - ____________)
Stage 2: Peak - point at which GDP is at the _________ point
Stage 3: Contraction - GDP starts to __________
Recession: if a contraction last ____months or more
Depression: an ______________ period of high unemployment and limited business activity
(last depression - 1929-1930's)
Stagflation - stagnation in business activity _____inflation of prices
Stage 4: Trough - point at which real GDP and employment _______ declining
Why Do Business Cycles Occur?
1. ___________ Decisions - increasing or decreasing investment and orders; new technology
decreasing costs
2. Changes in ___________ Rates - increasing or decreasing the cost to borrow money and
make purchases
3. Consumer ____________ - confident and secure?
4. __________ Issues - natural disasters; oil embargo
Predicting Business Cycles
Leading indicators - measures of economic performance that usually change 6-9 months
________ real GDP changes (new building permits; consumer expectations; stock prices;
money supply
Coincident indicators - measures of economic performance that usually change at the
______________ as real GDP changes (employment; sales volume; personal income)
____________ indicators - measures of economic performance that usually change after real
GDP changes (unemployment; ratio of consumer credit to personal income)
Real GDP Per Capita
Real GDP _________ by total population
 Clearer Picture of Economic Growth
 ____________ of a nation's standard of living
What determines economic growth?
____________ Resources - farm land, water, oil, forests
Human Resources – _________ force; skills and knowledge of workforce; many economist
believe this is the _______ important resource
Capital - ____________ and machinery; more and better capital increases output
Technology and _______________ - important factors in economic growth; (steam boat,
electricity, automobile, internet)
Productivity: the amount of _________ produced from a set amount of inputs (textbook
example - building a book case)
Unemployment Rate: the percentage of the labor force that is jobless and ________________
for work
 Does not account for ________________ workers who have stopped looking for work
(or the underemployed)
Underemployed: those who work part-time when they want full-time employment or those
who work at a job ________ their skill level.
Full employment: level of unemployment in which none of the ________________ is caused
by decreased economic activity (usually around 4-6%)
Types of Unemployment
1. Frictional Unemployment - refers to the ____________ unemployment of workers moving
from one job to another (changing jobs)
2. Seasonal Unemployment - refers to the unemployment due to the time of the _______
(winter - slow for construction and migrant farmers)
3. Structural Unemployment - results when the available jobs do not match up well with the
_____________________ of available workers (new technology; change in consumer demand;
specialized education required)
4. Cyclical Unemployment - results when the economy hits a low point in the
__________________ and employers decide to lay off workers
Poverty: situation in which a person lacks the _________________________ to achieve a
minimum standard of living
Poverty Threshold: the official ______________________ needed for the basic necessities of
life in the United States
Poverty Rate: percentage of people living in households that have incomes __________ the
poverty threshold
 Poverty does not hit all sectors of society _________
 Children and households headed by ___________ mothers are groups most affected by
poverty
Factors Affecting Poverty
 Education (direct relationship between level of ________________ and ___________)
 Discrimination (white males tend to have higher incomes than racial minorities and
women)
 Demographic Trends (1950's 1 in 4 marriages ended in divorce; Today almost ____ end
in divorce)
 Changes in Labor Force (Shift from ___________________ to service jobs)
Income Distribution
US has one of the ________________ median family incomes in the world, yet millions of
Americans live below the poverty line
Inflation: sustained ______ in the level of prices or a sustained fall in the purchasing power of
money
 Economists hope for a small rise in prices
Consumer Price Index (CPI): measure of changes in the prices of goods and services
commonly purchased by consumers
 Follows about 400 typical household ______________________
Producers Price Index (PPI): measures the changes in ____________________
 PPI is an indicator of inflation since producers tend to encounter inflation before
_________________
What Causes Inflation?
 _____________-Pull Inflation - demand rises faster than the production of goods and
services
 _________-Push Inflation - prices are pushed upward by rising production costs
(Hersey’s passes on increase cost of sugar to consumers of their chocolate bars)
Impact of Inflation?
 Decreasing __________ of the dollar
 Increasing ____________ rates
 Decreasing ______ returns on savings
Deflation: a _____________in the general price level
 rare (Great Depression - 1930's)