Flashcards in Macroeconomics (M42) Deck (81)
This is the price of all (goods and services produced by a domestic economy for a year at current market prices
Nominal Gross Domestic Product (GDP)
This is the price of all goods and services produced by the economy at price level adjusted (constant) prices. Price level adjustment eliminates the effect of inflation on the measure
This is the maximum amount of production that could take place in an economy without putting pressure on the general level of prices
What is the difference between Potential GDP and Real GDP?
When the GDP Gap is positive, what does it indicate?
That there are unemployed resources in the economy - therefore we would expect unemployment
When the GDP Gap is negative, what does it indicate?
That the economy is running above normal capacity and we would expect prices should begin to rise (inflation)
This is GDP minus depreciation
Net Domestic Product (NDP)
This is the price of all goods and services produced by labor and property supplied by the nation's residents
Gross National Product (GNP)
What are the two ways to calculate GDP?
1) Income Approach
2) Expenditure Approach
This approach of calculating GDP adds up all incomes earned in the production of final goods and services, such as wages, interest, rents, dividends, etc.
This approach of calculating GDP adds up all expenditures to purchase final goods and services by house-holds, business, and the government. Specifically it includes personal consumption expenditures, gross private investment in capital goods, & the country's net exports.
This depicts the demand of consumers, businesses, and government as well as foreign purchasers for the goods and services of the economy at different price levels
Aggregate Demand Curve
As price levels increase (inflation increases) nominal interest rates increase causing a decrease in interest sensitive spending, such as houses, automobiles, and appliances
Interest Rate Effect
When price levels increase, the market value of certain financial assets decreases causing individuals to have less wealth and therefore they reduce their consumption
When domestic price levels increase relative to foreign currencies, foreign products become less expensive causing an increase in imported goods and a decrease in exported goods. This decreases the aggregate demand for domestic products
International Purchasing Power Effect
This happens when consumers, businesses, or governments are willing to spend more or less, or when there is an increase or decrease in the demand for domestic products abroad
Aggregate Demand Curve Shifts
Marginal Propensity to Consume + Marginal Propensity to Save = ...
[ 1 / MPS ] *
Change in Spending =
Increase in Equilibrium GDP
This is a fluctuation in aggregate economic output that lasts for several years
This is a period of negative GDP growth - at least 2 consecutive quarters of negative GDP growth
A deep and long-lasting recession is referred to as...
In periods of high technology growth, firms tend to invest more because new products and innovations tend to be more profitable. This is known as what factor affecting investment spending...
the rate of technology growth
Lower real interest rates reduce the cost of investment, known as what factor affecting investment spending...
The real interest rate (nominal rate minus the inflation premium)
If there are already enough capital goods in the economy to meet aggregate demand there is little incentive to invest, known as what factor affecting investment spending...
The stock of capital goods
This is the most volatile portion of GDP
As the purchase price or operating cost of plant and equipment decreases, firms will invest more, known as what factor affecting investment spending...
The acquisition and operating cost of capital goods
Government policy can be used to stimulate investment spending, which is known as what factor affecting investment spending...
Actions by the government
Unemployment can be because of what? (3)
1) Frictional Causes
2) Structural Causes
3) Cyclical Causes
This occurs because individuals are forced or voluntarily change jobs - perhaps while looking for a job or when they are new entrants into the workforce