Overview of Macro

Question 1

Economic growth determined by

Answer 1

• Potential output when operating at its full productive capacity at the target rate of unemployment
• Productivity which is the output produced per unit of input
• Per capita output which is the total output divided total population.

Sources of growth: accumulation of capital through Investment, increases in available resources (e.g: labor), technological improvements

Question 2

Business cycles

Answer 2

Peak - highest point before a recession
Recession - decline that lasts at least 6 months
Expansion - period between recession and next peak
Recovery - beginning of expansion
Boom - extremely fast expansion (near end of it)
Depression - long and low recession

Question 3

Target rate of unemployment

Answer 3

lowest sustainable rate of unemployment believed to be achievable under existing circumstances

Question 4

Frictional unemployment

Answer 4

arises from normal labor market turnover and the time it takes for workers to find new jobs

Question 5

Structural unemployment

Answer 5

created by changes in tech and foreign competition that changes the skills needed to perform jobs

Question 6

You’re doing great

Answer 6

Keep going

Question 7

Cyclical unemployment

Answer 7

arising from ups and downs of the economic cycles

Question 8

Natural unemployment

Answer 8

arises from frictions and structural changes when there is no cyclical unemployment

economy considered to be at FULL EMPLOYMENT when there is ONLY NATURAL UNEMPLOYMENT

Question 9

Inflation

Answer 9

term for a rise in the overall price level over time

measured with price indexes

Question 10

Price indexes

Answer 10

summarizes what happens to the prices in a constant “market basket” of goods and services

Question 11

GDP deflator

Answer 11

uses aggregate output of the economy