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Flashcards in Macroeconomics (M42) Deck (81)
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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

Real GDP


This is the maximum amount of production that could take place in an economy without putting pressure on the general level of prices

Potential GDP


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.

Income Approach


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.

Expenditure Approach


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

Wealth Effect


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

Business Cycle


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...

a Depression


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

Investment Spending


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

Frictional Unemployment


This occurs due to changes in demand for products or services, or technological advances causing not as many individuals with a particular skill to be needed

Structural Unemployment