Macro Econ Chapter 5
Micro econ
Focuses on individual industries and the behavior of individual decision making - firms + households
The unemployment rate equals...
(Labor force - employed)/labor force
Business cycle
The cycle of short term ups and downs in the economy
Unemployment Rate
% of labor force that's unemployed
Great Depression
1929-1930s
Deflation
A decrease in the overall price level
Disinflation
A decrease in the rate of inflation
Hyperinflation
A period of very rapid increases
Depression
A prolonged and deep recession
Stagflation
A situation of high inflation and high employment (1970s)
Aggregate Behavior
Behavior of all households and firms together
Closed Economy
Firms + Gov + Households
Corporate bonds
Promissory bonds issued by the federal government when it borrows money
Macro econ
Deals with the economy as a whole and focuses on the total national income and aggregate behavior - looks at overall prices, not individual
Circular Flow
Diagram showing the flows in and out of the sectors of economy
If output is rising and unemployment is falling, the economy MUST be in an...
Expansion
Three Market Arenas
Goods and Services Labor Financial
Fiscal policy
Government policies concerning taxes and spending
Money Market
HH supply funds to the money market in expectation of earning income (bonds) HH demand funds from this market
Goods and Services Market
Households and firms purchase from firms in goods and services Firms purchase goods and services from each other and also supply the g&s market HH, firms, gov demand from the market
Labor Market
Households supply labor.. firms and the gov demand labor Labor is supplied to and demanded from the rest of world
Inflation
Increase in the overall price level
Treasury bonds, notes, bills
Notes issued by the federal government when it borrows money
Three Major Concerns of Macro Econ
Output growth, unemployment, inflation/deflation
Recession
Period during which aggregate output declines. Conventionally, a period in which output declines for 2 consecutive quarters
Dividends
Portion of a firms profits that the firm pays out each period to its shareholders
Sticky Prices
Prices that do not always adjust rapidly to maintain equality between quantity supplied and quantity demanded
Macroeconomics policies became more influenced by Keynes' theories starting with
The Great Depression
The trend of the economy is...
The long run growth path of the economy
Expansion or Boom
The period in the business cycle from a trough up to a peak during which output and employment grew
Contraction or Slump
The period in which the business cycle from a peak to a trough during which output and employment fall
Fine Tuning
The phrase used by Walter Heller to refer to the gov's role in regulating inflation and employment
Monetary Policy
Tools used by the Federal Reserve to control short-term interest rates
The major lesson of the circular flow diagram is that
Total income in the economy must always equal total spending
Aggregate Output
Total quantity of goods and services produced in an economy in a given period
In the circular flow diagram, the different payments made by firms to households include...
Wages and profits
