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Macroeconomics

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  • 1. Unit 3 Macroeconomics
  • 2. I. Measuring the Economy
  • 3. A. GDP
        • Defined – $ value of products made within a country’s borders.
        • Used by economists & leaders to analyze domestic and foreign economic policy.
  • 4. B. Ways of Calculating GDP
          • Expenditure Approach - Add together
            • Add together all goods and services.
            • Net exports or imports of goods and services.
          • Income Approach… Add together all incomes in the economy.
  • 5. C. Downsides of using GDP
          • It does not take into account..
          • Types of items produced
          • Health
          • Black Market
          • Households
          • Amount produced per person
          • How goods are distributed
          • Over adjustment for inflation.
  • 6. D. A Wealthy Nation has the following…
          • Amounts of natural resources (including productive labor) within a nation.
          • Technology and equipment available to a nation.
          • Skill and educational level of workforce.
          • Price levels.
          • Capital deepening – more spent on capital with each worker.
          • Savings invested in the economy help spur growth.
          • Population increase means more workers for more production.
          • Government investing in public goods (roads, school)
          • Foreign trade increases growth if we export goods or import investments.
  • 7. E. Ups & Downs
        • Phases – Business cycle
          • Expansion – Period of economic growth
          • Peak – height of economic expansion.
          • Contraction – period of economic decline
          • Trough – Lowest point in an economic contraction.
  • 8. 2. Negative Parts of the Cycle
          • Recession – ½ year of declining GDP.
          • Depression – Recession that is especially long and severe.
          • Stagflation – Decline in real GDP combined with a rise in the price level.
  • 9. F. What can dramatically change GDP?
          • Investment.
          • Interest rates, credit.
          • Consumer expectations.
          • External shocks (bad weather & war).
  • 10. G. Historical Examples
        • Great depression –
          • GDP falls over 10%
          • unemployment rate - over 20%.
        • 1970’s
          • Greatest example of stagflation.
          • OPEC reduces supply, prices rise
          • Production slows due to end of Vietnam
  • 11. II. Unemployment
  • 12. A. Types
          • Frictional – When people take time off to find a job.
          • Seasonal – Industries slow
          • Structural – Workers’ skills do not match.
          • Cyclical –economic hard times
  • 13. B. Measuring
          • Unemployment rate = number of people unemployed divided by the labor force
          • National unemployment is for USA as a whole. Different from state to state.
  • 14. C. Full Employment
    • No cyclical unemployment.
    • Few people left for employers to hire.
    • Companies raise pay, pass on costs to customers = inflation.
  • 15. III. Inflation
        • A. Defined
          • General increase in prices.
          • Creeping – Slow inflation rate between 1 -3% annually.
          • Chronic – Accelerated and hard on the economy. Hard to predict.
          • Hyperinflation – Inflation that rises rapidly as high as 100-500% per month. Hyperinflation is equivalent with total economic collapse.
  • 16. B. Measuring
          • Price index – measured amount of price increases for a standard group of goods over a period of time.
          • Consumer price index is computed by the Bureau of Labor Statistics.
          • CPI = updated costs x 100
    • Base period cost
  • 17. C. Causes
          • Quantity – too much money in the economy causes prices to rise.
          • Demand-pull – When demands for goods and services exceeds supplies.
          • Cost-push – producers raise prices in order to pay increased costs.
  • 18. D. Effects
          • Purchasing power – as prices increase, your purchasing power decreases.
          • Fixed income recipients like those on social security, have less purchasing power when prices rise.
          • The amount of interest you receive from investments will be of less value.
  • 19. IV. Poverty
        • A. Measured
          • Poverty Threshold – income below which is sufficient to support a family or household.
          • varies among size of the household.
          • Poverty is higher for
            • African-Americans
            • Hispanics
            • Single mothers
            • Children
            • Inner cities
            • Isolated rural regions
  • 20. B. Causes
          • Lack of Education – as you increase education, the average income also increases.
          • Location – Inner city residents –less likely to own autos. Rural residents distant from everything.
          • Discrimination –
            • Europeans earn more than racial minority groups
            • Men earn more than women.
            • Discrimination is diminishing.
            • Programs like affirmative-action don’t close gap.
          • Economic Shifts –bad times hurt poor worse.
          • Family Structure - Two incomes are better than one..
  • 21. C. Income
          • 1. Average income in the USA $37,000.
          • Income inequality is decided by…
            • Ranking the nation’s household incomes
            • Dividing them into quintiles
            • Average each quintile’s income
            • Then calculate their share of total income.
          • Uneven distribution is caused by lack of skills, education, and inheritances.
  • 22. D. Antipoverty
          • Enterprise zones – area of underdevelopment that businesses are lured to by tax breaks.
          • Government employment assistance: training, unemployment, and minimum wage.
          • Welfare: Begun by President Johnson, reformed by President Clinton.
            • Food Stamps
            • WIC
            • Cash assistance’
            • Heating.
            • Housing.
            • Welfare to work.

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