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Unformatted text preview: Chapter 5: 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: • Dollar value of all final goods/services • Income created via these goods/services • Only final goods/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 o Occurs while the economy is growing slowly/in a recession o Raw materials/oil skyrocket o AS curve shift inward • 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 • Spend more, tax less 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 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 • Often caused by insufficient aggregate demand • Fiscal or monetary policies augment demand, increase output Inflation • Frequently caused by aggregate demand racing ahead too fast • Anti-inflation any devices. Decrease GDP Nominal GDP • Sum of money values using current prices Output = income Nominal = money value • Price or quantity increases GDP Real GDP • Fixed set of prices, measure the amount of production through the years. Change in quantity. Chapter 6: Growth • 10% annual interest • Steady growth is good Labor Productivity Growth: Y: GDP% (Y/L)(L) = Y L: Hours of labor Potential GDP: • How much output an economy can produce if all sources/labor is used, if at full employment. Unemployment Rate:- G>G = unemployment goes down- G<G = unemployment goes up- Minorities, teenagers, low class Labor Force Participation = LF/non-institutional civilian population “Types of Unemployment”- Frictional: quit for training or better job, quit for themselves....
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