ec - Macroeconomics tries to understand the economy to...

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Macroeconomics tries to understand the economy to achieve three basic goals 1) Rapid Economic Growth Economic growth is the ability of an economy to produce increasing quantities of goods and services 2) High Employment High employment is important, both because it helps us achieve our full productive potential, and because it affects the distribution of economic well-being among our citizens. 3) Stable Prices (or low inflation rates) Inflation rate is the percenage increase in a price level from one period (usally measured annually) to the next. Low inflation rates are important because coping with inflation uses up resources that could otherwise be used to produce goods and services. Inflation imposes costs on society and keeping the rate of inflation low helps to reduce these costs. The Macroeconomic Approach Aggregation is the process of combining different things into a single category The next two chapters examine three of the most important economic aggregates: output (chapter 7), employment (chapter 8), and the price level (chapter 8). First though we will introduce the Business cycle and call our measure of aggreate output Gross Domestic Product (GDP), which we will defined later. 1999Q1 - 2002Q4 Real GDP 8700 8800 8900 9000 9100 9200 9300 9400 9500 9600 1999Q1 1999Q2 1999Q3 1999Q4 2000Q1 2000Q2 2000Q3 2000Q4 2001Q1 2001Q2 2001Q3 2001Q4 2002Q1 2002Q2 2002Q3 2002Q4 RGDP 1
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Business cycles and economic fluctuations Time Real GDP Peak Trough Expansion Recession Expansion The Business Cycle An Expansion is a period of increasing real GDP A Peak is the point at which real GDP reaches its highest level during an expansion. A Trough is the point at which real GDP reaches its lowest level during a recession. A Recession is the period of a business cycle during which total production and total employment are decreasing. A recession is generally considered to be a period when real GDP falls for 6 or more consecutive months. (This is only a “rule of thumb”) A recession is also considered to exist during periods of abnormally low real GDP that are considered to be significant in terms of depth, breadth, and duration. For the U.S. the determination of an “official” recession is made by the National Bureau of Economic Research. Depression is a severe recession Other terms associated with the business cycle A Countercyclical variable is a variable that falls when real GDP rises. An example is unemployment. 2
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A Pro-cyclical variable is a variable that rises when real GDP rises. Examples are investment spending and employment. Chapter 7:
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This note was uploaded on 04/19/2011 for the course ECON 200 taught by Professor Staff during the Winter '09 term at Indiana.

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ec - Macroeconomics tries to understand the economy to...

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