Flashcards in Macro Midterm Deck (47):

1

## Aggregate Output:

### everything that is produced within a country

2

## Potential Output

### Y* amount of goods/services an economy could produce (assumes everyone who wants to work is working 40 hour weeks and full use of capital)

3

## Y*

### potential output

4

## Y

### actual output

5

## recessionary gap

### Y* > Y

6

## Inflationary gap

### Y > Y*

7

## employement

### anyone over the age of 15 who has a job

8

## Cyclical unemployment:

### caused by recession/business cycle

9

## Frictional unemployment

### moving between jobs

10

## Structural unemployment

### mismatch of skills

11

## labor force

### number of people employed + unemployed

12

## Unemployed people

### Does not include: discouraged (given up) workers, students, retired people

13

## Employment rate

###
# people employed / labor force * 100

14

## Labour participation rate

### labour force / adult population

15

## Calculating GDP

### value added (avoids double counting), expenditure (formula) income approach

16

## Income approach

### wages + profits + interest payments + indirect taxes - subsidies + depreciation

17

## CPI negatives

###
OVERSTATES inflation

Does not measure quality change, introduction of new goods, or substitution effect

18

## Formula for percentage change

### new - old / old * 100

19

## CPI Steps

###
Calculate consumption in each year (using base year quantities)

Calculate CPI in each year = total cost (year) / total cost (base year) * 100

Inflation = CPI (year 2) - CPI (year 1) / CPI (year 1) * 100

20

## GDP approach inflation

###
1. Calculate nominal GDP in each year (price * quantity) and add

2. Calculate real GDP for each year (keep price constant and change quantity)

3. GDP deflator for each year = nominal GDP / real GDP * 100

Inflation = new deflator - old deflator / old deflator * 100

21

## C formula

### C = a + bYd

22

## MPS

### Z - slope of AE function

23

## AE = A + zY

### A is autonomous expenditure, Z is MPS or induced expenditure

24

## Nx

### X0 - mY

25

## Simple multiplier

### 1 / 1-Z (steepter = bigger Z = bigger multiplier)

26

## How to calc changes?

### △ Y = △ in A * simple multiplier (1 / 1-Z)

27

## Fisher effect

### i = r + pie^e

28

## Shifts in AE

### change in a, I, G, X

29

## Change in AE Slope

### change in MPC, tax, MPI

30

## Change in Price level

### shifts AE up (if decrease in PL), move along AD

31

## Large Z

### Steep AE = flat AD curve, large shifts (unstable)

32

## Small Z

### Flat AE = steep AD, small shifts (stable)

33

## Multiplier

### distance between new and old equalibrium (= A * mult (change in Y / change A)

34

## Simple mult

### distance between AD curves after shift (constant PL) = change A/1-z

35

## Automatic Stablizers

### increase tax, decrease MPC, increase MPI (they make Z smaller)

36

## Supply Shocks

### NEG = left, pos = right - tech, factors of production

37

## Negative Demand Shocks

### left shift - downward pressure on wages (slow due to sticky wages)

38

## Demand shock causes

### change in I (interest rates), G or tax (fiscal policy) or exports

39

## Positive demand shock

### right - upward pressure on wages, they rise until equalbrium

40

## Automatic (economy on its own)

### AS shifts wages until equalibrium

41

## Policy changes

### Shift AD curve to equalbirum - not exact or long tern

42

## National savings

### Y - C - G

43

## Private savings

### Y - T - C

44

## Public Savings

### T - G

45

## Neoclassical Growth theory

### diminishing marginal returns (keep 1 constant), constant returns to scale (change both, output should change the same amount)

46

## If population increases

### GDP increases, living standards decrease

47