Chapter 19

Chapter 19 - Chapter 19: What Macroeconomics Is All About...

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Chapter 19: What Macroeconomics Is All About Macroeconomics: the study of the determination of economic aggregates , such as total output, total employment, the price level, and the rate of economic growth. A full understanding of macroeconomics requires understanding the nature of short-run fluctuations as well as the nature of long-run economic growth 19.1 Key Macroeconomics Variables Output and Income National product: the most comprehensive measure of a nation’s overall level of economic activity, the value of its total production of goods and services Aggregate Total Output: add up values of different products Nominal national income: total national income measured in current dollars (current) o Can change due to change in the physical quantities or the prices on which it is based Real national income: national income measured in constant (base-period) dollar. It changes only when quantities change. Business cycle: fluctuations of national income around its trend value that follow a more or less wavelike pattern. Recession: a downturn in the level of economic activity. Often defined precisely as two consecutive quarters in which real GDP falls. Potential output (Y*): the real GDP that the economy would produce if its productive resources were employed at their normal level of utilization. Also called potential GDP or full-employment output. Output gap: Actual national income minus potential national income, Y – Y* Recessionary gap: Y < Y* Inflationary gap: Y > Y* Employment, Unemployment, and the Labour Force If more is to be produces, either more workers must be used in production (rise in employment), or
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Chapter 19 - Chapter 19: What Macroeconomics Is All About...

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