Chapter 5 Notes - Vandan Desai ECON 102Principles of...

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Vandan Desai ECON 102—Principles of Macroeconomics 1 Chapter 5 —Macroeconomics: The Big Picture (Lecture &otes) I. Real GDP over Time A. Real gross domestic product (real GDP) —a measure of the value of all the goods and services newly produced in a country during some period of time, adjusted for changes in prices over time i. Also called output or production ii. Most comprehensive measure of how well the economy is doing B. Economic growth —an upward trend in real GDP, reflecting expansion in the economy over long period of time C. Economic fluctuations —short term swings in real GDP that lead to deviations of the economy from its long-term growth trend (also called business cycles) D. Economic Growth: The Relentless Uphill Climb i. Large increase in real GDP means people in U.S. produce a much greater amount of goods and services each year than they did 35 years ago 1. Leads to improvements in economic well-being of individuals 2. To understand how individuals benefit from increases in real GDP, a. Average production per person (real GDP per capita ) = real GDP / # of people in economy (increased ~2% each year) Total production of all food, clothes, cars, houses, CDs, concerts, education, computers, etc. per person Increase in real GDP per capital improves the standard of living of individuals b. Annual economic growth rate —percentage increase in real GDP each year (for last 35 years, ~3% growth in real GDP) ii. Over long spans of time, small differences in economic growth, even less than 1 percent per year, can transform societies E. Economic Fluctuations: Temporary Setbacks and Recoveries i. Recession —a decline in real GDP that lasts for at least six months (vary in regularity , duration , and depth ) ii. Peak —the highest point in real GDP before a recession iii. Trough —the lowest point of real GDP at the end of a recession iv. Expansion —the period between the trough of a recession and the next peak, consisting of a general rise in output and employment v. Recovery —the early part of an economic expansion, immediately after the trough of the recession vi. A Recession’s Aftermath 1. Economy usually takes many years to return to normal after recession 2. Thus, a period of bad economic times always follows a recession while the economy recovers
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Chapter 5 Notes - Vandan Desai ECON 102Principles of...

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