Macroeconomics Exam #1 Study Sheet

Macroeconomics Exam #1 Study Sheet - Basic Concepts...

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Basic Concepts Business Cycle Short-run movements in key macroeconomic variables Measurement: Quarterly or annual movements Long-Term Trends Long-run movements in key macroeconomic variables Measurement: Observations at widely spaced points in time or averages over long periods of time Growth of Income or Output Y t = Real Income Real Output Real GDP “Real” = GDP measured in constant prices ∆Y t = Y t – Y t-1 = Change in Real Income/Output/GDP ∆Y t / Y t-1 = Growth Rate of Real Income/Output/GDP If growth rate is positive, real income is rising. This implies that the economy is in an expansion if the growth rate is rising for two or more consecutive quarters. If growth rate is negative, real income is falling. This implies that the economy is in a recession if the growth rate is falling for two or more consecutive quarters. An extended recession is known as a depression. Inflation P t = Average level of prices Implicit Price Deflator for GDP Consumer Price Index ∆P t = P t – P t-1 = Chance in price level ∆P t / P t-1 = π t = Rate of Inflation CPI measures households well but not businesses If rate of inflation is positive, inflation occurs. This implies that either the price level is rising or that the cost of living is rising. If rate of inflation is negative, deflation occurs. This implies that either the price level is falling or the cost of living is falling. The Unemployment Rate U t = Unemployment Rate It is the number of workers unemployed as compared to the entire labor force. Income per Capita Real GDP / Population An important component of a measure of the standard of living of society. Not the only component of a measure of the standard of living of a society. National Income Accounting GDP is gross domestic product. Nominal GDP is the sum of the money value of the final output of all goods and services in the domestic economy during a period of time.
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Key Words: Nominal GDP = GDP measured in current dollars/prices Money Value = Roughly price x output Final Output Goods and services purchased by final/ultimate users Ignores purchases of intermediate goods to avoid double-counting All Goods and Services = Virtually everything traded on markets Domestic Output = Produced within US geographic borers Period of Time = Produced over a period of time, i.e. a quarter or a year Investment does NOT include: Financial investments Stock/Bond Has nothing to do with production of new goods/services Purchases or sales of existing or used houses
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This note was uploaded on 02/10/2012 for the course ECON 101 taught by Professor Abc during the Fall '08 term at Johns Hopkins.

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Macroeconomics Exam #1 Study Sheet - Basic Concepts...

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