Macro Econ Chapter 5

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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


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