Midterm 2 Outline - Chapter 6 Outline M icroeconomics...

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Chapter 6 Outline Microeconomics – focuses on how decisions are made by individuals or firms Macroeconomics – study of the economy as a whole o The behavior of the whole macroeconomy is greater than the sum of individual actions and market outcomes o Uses economic aggregates to study the economy Economic aggregates are measures of economic variables that summarize data collected from different markets o Studies long-run economic growth Long-run economic growth – the sustained upward trend in the economy’s output over time Occurs when aggregate output per person increases Results in increase in standard of living Macroeconomists wonder what causes LREG Paradox of thrift – during hard times, families cut spending, results in a depressed economy, families end up worse off than if they did not cut spending Self-regulating economy – problems (ex. Unemployment) are solved w/o government help Keynesian economics – says economic slumps are caused by not enough spending and can be mitigated by the government Business cycle – short-run alternation between economic downturns/upturns o Peak – expansion to recession o Trough – recession to expansion Depression – deep, prolonged economic downturn Recession – period of economic downturn when output/employment are falling o Many countries are too strict and say that there needs to be 6 continuous months of falling output to declare a depression
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o NBER declares recession in the U.S. Expansions/recoveries – periodic upturns, output/employment are rising Stabilization policy – policies to reduce the severity of a recession o Monetary policy – uses changes in the quantity of money in circulation o Fiscal policy – uses changes in government spending Inflation – rising aggregate price level o Inflation rate – annual % change in aggregate price level Deflation – falling aggregate price level Price stability – aggregate price level is only slowly changing o A desirable economic goal Hyperinflation – always the result of governments printing money to pay their bills Open economy – economy that trades goods and services with other countries Trade deficit – when a country imports more than it exports Trade surplus – when a country exports more than it imports Unemployment is the most widely used indicator of conditions in the labor market Real GDP – the economy’s real aggregate output is the real value of the total production of final goods/services produced during a given time period Chapter 7 Outline Good macroeconomic policy depends on good measurement of key economic variables o Key variables: Level of aggregate income and aggregate output Level of employment/unemployment Level and rate of change of prices in the economy
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National accounts – keep track of the flows of money between different parts of the economy o Consist of national income and product accounts o
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