Knetwit #1 - Macroeconomics: Chapter 5: Micro = how the...

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Macroeconomics: Chapter 5: Micro = how the individual decision making units behave. - Macro- economic aggregates. An abstraction that people use to describe some salient feature of economic life. Ø Domestic Product: · Represents the total production of a nation’s economy. · Process by which real objects are combines into an abstraction called total domestic product is aggregation. Composition of demand and supply = little consequence for economy wide issues. Fluctuations = concern with demand. Macroeconomics: Resource allocation and income distribution are unimportant to overall rates of unemployment and inflation. The Aggregate Demand Curve: - Shows the quantity of domestic product that is demanded at each possible value of the price level. The Aggregate Supply Curve: - Shows the quantity of domestic product that is supplied at each possible value of the price level. Inflation: - Refers to a sustained increase in the general price level. Recession: - A period of time during which the total output of the economy declines. Gross Domestic Product: - The sum of the money values of all final good and services produced in the domestic economy and sold on organized markets during a specified period of time, usually a year. n The GDP for a particular year includes only goods and services produced within the year. n Only final goods and services count. Intermediate Good: - A good purchased for resale or for use in producing another good. Only market activity is included in GDP Ecological costs are not netted out of the GDP Depression: - John Maynard Keynes- the General Theory of Employment, Interest, and Money (1936) · Keynes rejected that economy fixes itself. · Condemned by stagnation. · General theory. Fiscal Policy: - Plan for spending and taxation. It can be used to steer aggregate demand in the desired direction. - Inflation contained by price controls. The Great Stagflation: 1973-1980
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- Inflation that occurs while the economy is growing slowly or in a recession. - Raw materials and oil skyrocket - Economics aggregate supply curve shift inward Reaganomics: - 1981- promised large tax cuts, boost growth and reduce inflation. Monetary Policy: - Refers to actions taken by the Federal Reserve to influence aggregate demand by changing interest rates - Using excruciatingly high interest rates to deter spending Clinton: - Transformed the huge federal budget deficit into a large surplus, turned out to be the crowning achievement of economic policy Stabilization Policy: - The name given to government programs designed to prevent or shorten recessing and to counteract inflation. (stabilize) · Government can reduce unemployment by increasing aggregate demand. Recessions & Unemployment are often caused by insufficient aggregate demand. -
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This note was uploaded on 04/07/2009 for the course ECON 20091_ECO taught by Professor Mohammadsafarzadeh during the Fall '09 term at USC.

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Knetwit #1 - Macroeconomics: Chapter 5: Micro = how the...

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