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Macroeconomics Concepts

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Irenee Payne

on 1 October 2012

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Transcript of Macroeconomics Concepts

Measuring Economic Activity Overall levels of income, employment, and prices are determined by the spending and production decisions of households, business, government, and net exports. Gross Domestic Product The gross domestic product is the dollar value of all final goods and services produced in a country's borders in a given year. How do you measure GDP? GDP = G + C + I +(-)(x-m) o v e r m e n t n S p e n d i n g m p o r t s o n s u m e r S p e n d i n g n v e s t e n t s p o r t s A benefit to an increase in GDP is a rise in employment rates. There are currently 13 million unemployed in the U.S. Types of Unemployment Seasonal Cyclical Frictional Structural Influences on GDP Aggregate Supply: the total amount of goods and services in the economy available at all possible price levels Aggregate Demand: the amount of goods and services in the economy that will be purchased at all possible price levels The Business Cycle A business cycle is a period of economic expansion followed by a period of contraction; cycles are major changes in GDP above or below normal levels. expansion contraction trough peak expansion is a period of economic growth as measured by a rise in real GDP a peak is the height of expansion, when real GDP stops rising a contraction is a period of economic decline of real GDP; a contraction follows the peak A prolonged economic contraction is a recession. Recessions typically last from six to eighteen months, and are typically marked by unemployment rising into the range of six to ten percent. A recession that is typically long and severe is a depression. A depression refers to a deep recession with features such as high unemployment and low factory output a trough is the lowest point in an economic contraction when GDP stops falling frictional unemployment is unemployment that occurs when people take time off in order to find another job Example: a person might change jobs, be laid off from their current jobs, need some time to find the right job after they have finished their schooling, or take time off from work for a variety of reasons seasonal unemployment occurs when industries slow or shut down for a season or when industries make seasonal shifts in their production schedules Example: life guards only work during the summer and farmers only work during the appropriate seasons for their crops structural unemployment occurs when workers do not have the skills that match the jobs that are available Example: a person has currently graduated from med school but they can not find work in the medical field therefore they must work at a job that does not require a college level degree cyclical unemployment occurs during recessions, when the demand for goods and services drops; the resulting slowdown in production causes the demand for labor to drop, and companies lay off employees Example: lifeguards only work during the summer and farmers only work during the appropriate seasons for their crops Economic Growth Economic growth is a steady, long-term increase in real GDP Economic growth is calculated by comparing totals from the current and past fiscal periods. The last period's total is subtracted from the current period's total to derive the amount of growth. Inflation Inflation is a general increase in prices. In order to measure inflation, you calculate the difference between the item's current year price and the item's past year price. National Debt the national debt is the total amount of money the federal government owes to bondholders the national debt is the sum of all government deficits and surpluses http://www.usdebtclock.org/
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