Macroeconomics
102 flashcards by MentisLibrary
The economy as a whole: national accounts, growth, unemployment and inflation, money and banking, fiscal and monetary policy, exchange rates and the open economy, and where the major schools genuinely disagree.
- What is gross domestic product?
- The market value of all final goods and services produced within a country's borders in a given period.
- What are the three ways of measuring GDP?
- Output (value added at each stage), income (wages, profits, rents and taxes less subsidies) and expenditure (what buyers spend on final output). In principle they give the same total.
- What is the expenditure identity for GDP?
- GDP equals consumption plus investment plus government purchases plus net exports.
- How do nominal and real GDP differ?
- Nominal GDP values output at current prices; real GDP values it at the prices of a base period, so it strips out price changes.
- What is the GDP deflator?
- The ratio of nominal to real GDP, times 100. It is the broadest measure of the price level for domestically produced output.
- What does GDP leave out?
- Unpaid household work and care, the informal and illegal economy, environmental depletion, the distribution of income, and quality changes that statisticians struggle to price.
- How does gross national income differ from gross domestic product?
- GDP counts production inside the territory; gross national income counts income earned by residents, wherever it is earned, so it adds net income from abroad.
- What is value added, and why does it matter for measuring GDP?
- Value added is a producer's output minus the intermediate inputs bought from others. Summing value added avoids counting the same output more than once.
- What counts as investment in the national accounts?
- Spending on newly produced capital: business plant and equipment, intellectual property, new housing, and changes in inventories.
- What is the circular flow of income?
- The model in which households supply factors to firms and receive income, and firms sell output to households, with leakages into saving, taxes and imports and injections from investment, government spending and exports.
- What is potential output?
- The level of output an economy can sustain when labour and capital are used at normal rates, without inflation accelerating.
- What is the output gap?
- The difference between actual and potential output, usually expressed as a percentage of potential.
- What is a business cycle?
- The recurring pattern of expansion and contraction in aggregate economic activity around its trend.
- How is a recession defined?
- A broad decline in economic activity lasting more than a few months. The common shorthand is two consecutive quarters of falling real GDP, but official datings look at output, employment, income and sales together.
- What is Okun's law?
- An empirical relationship between the output gap and unemployment: output falls by roughly two percent for each percentage point that unemployment rises above its natural rate, with estimates varying by country and period.
- What is a demand shock?
- A sudden shift in aggregate demand, which moves output and the price level in the same direction.
- What is a supply shock?
- A sudden change in production costs or productive capacity, which moves output and the price level in opposite directions.
- What does the aggregate demand and aggregate supply model show?
- The price level and real output determined by the interaction of total demand with short-run and long-run aggregate supply.
- What is economic growth?
- A sustained increase in real output, usually measured as growth in real GDP or, for living standards, real GDP per person.
- What is the rule of 70?
- A quick approximation: a quantity growing at $g$ percent per year doubles in about $70 / g$ years.
- What are the sources of economic growth?
- More labour, more capital per worker, better human capital, and improvements in total factor productivity, which is the efficiency with which inputs are combined.
- What is total factor productivity?
- The part of output growth not explained by measured growth in labour and capital, taken as a measure of technology and efficiency.
- What does the Solow growth model predict?
- With diminishing returns to capital and a fixed saving rate, an economy converges to a steady state where investment just offsets depreciation and population growth, so long-run growth in output per worker comes only from technological progress.
- What is the convergence hypothesis?
- Poorer countries should grow faster than richer ones because capital is scarcer there and its return is higher, so incomes converge.
- What is endogenous growth theory?
- Models in which the growth rate is determined inside the model by investment in knowledge, research and human capital, rather than by exogenous technical progress.
- Why do institutions matter for growth?
- Secure property rights, enforceable contracts, constraints on expropriation and a functioning legal system determine whether it is worth investing and innovating at all.
- How is unemployment measured?
- Through a household labour force survey. A person is unemployed if they are without work, available to start, and have actively sought work in a recent reference period.
- How is the unemployment rate calculated?
- The number unemployed divided by the labour force, which is the employed plus the unemployed.
- What is the labour force participation rate?
- The share of the working-age population that is either employed or actively seeking work.
- What is frictional unemployment?
- Short-term unemployment as people move between jobs or enter the labour market, arising from the time it takes to match workers and vacancies.