Podcast
Questions and Answers
Which of the following scenarios would be MOST directly addressed by macroeconomic policies?
Which of the following scenarios would be MOST directly addressed by macroeconomic policies?
- An individual consumer choosing between two brands of smartphones.
- A local bakery deciding whether to hire another employee.
- The federal government implementing measures to combat a nationwide recession. (correct)
- A company determining the optimal price point for a new product.
If a country experiences a significant increase in real GDP but also faces a notably higher inflation rate, which macroeconomic goal is LEAST likely being achieved?
If a country experiences a significant increase in real GDP but also faces a notably higher inflation rate, which macroeconomic goal is LEAST likely being achieved?
- Price Stability (correct)
- Economic Growth
- Balance of Payments Equilibrium
- Full Employment
Which of the following transactions is included when calculating GDP using the expenditure approach?
Which of the following transactions is included when calculating GDP using the expenditure approach?
- The purchase of stocks and bonds.
- The sale of a used car.
- The value of intermediate goods used in production.
- Government spending on infrastructure projects. (correct)
How does real GDP differ from nominal GDP?
How does real GDP differ from nominal GDP?
An economy is in a recession. Which fiscal policy action would be MOST appropriate to stimulate economic activity?
An economy is in a recession. Which fiscal policy action would be MOST appropriate to stimulate economic activity?
What is the primary difference between structural and cyclical unemployment?
What is the primary difference between structural and cyclical unemployment?
If a country's central bank lowers the reserve requirement, what is the likely effect on the money supply and lending activity?
If a country's central bank lowers the reserve requirement, what is the likely effect on the money supply and lending activity?
Which of the following is the MOST direct cause of demand-pull inflation?
Which of the following is the MOST direct cause of demand-pull inflation?
What does a vertical long-run aggregate supply (LRAS) curve indicate?
What does a vertical long-run aggregate supply (LRAS) curve indicate?
If a country's currency depreciates, what is the likely impact on its exports and imports?
If a country's currency depreciates, what is the likely impact on its exports and imports?
Flashcards
Macroeconomics
Macroeconomics
The study of the economy as a whole, examining aggregate indicators like GDP, unemployment, and inflation.
Economic Growth
Economic Growth
A sustained increase in the production of goods and services over time.
Gross Domestic Product (GDP)
Gross Domestic Product (GDP)
The total market value of all final goods and services produced within a country's borders during a specific period.
Consumption (C)
Consumption (C)
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Investment (I)
Investment (I)
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Real GDP
Real GDP
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Business Cycle
Business Cycle
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Contraction (Recession)
Contraction (Recession)
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Unemployment Rate
Unemployment Rate
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Frictional Unemployment
Frictional Unemployment
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Study Notes
Key Macroeconomic Goals
- Economic growth is aiming for a sustained increase in the production of goods and services over time.
- Full employment is seeking to minimize unemployment, ideally reaching a level where only frictional and structural unemployment exist.
- Price Stability is focusing on maintaining a stable price level to avoid inflation or deflation.
- Balance of Payments Equilibrium is aiming to balance a country's international transactions, including trade and financial flows.
Gross Domestic Product (GDP)
- GDP can be calculated using the expenditure approach, the income approach, or the production approach.
Expenditure Approach to GDP
- GDP = C + I + G + (X - M)
- C = Consumption is spending by households on goods and services.
- I = Investment is spending by businesses on capital goods, inventories, and structures.
- G = Government Purchases are spending by the government on goods and services.
- X = Exports are goods and services produced domestically and sold abroad.
- M = Imports are goods and services produced abroad and purchased domestically.
- (X - M) = Net Exports are the difference between exports and imports.
Income Approach to GDP
- Adjustments are made for items such as depreciation and indirect taxes.
Nominal vs. Real GDP
- Real GDP is calculated using a base year's prices to value current production.
Economic Growth
- Productivity, which measures output per unit of input, is a key driver of economic growth.
Business Cycle
- Expansion is a period of increasing economic activity, characterized by rising GDP, employment, and consumer confidence.
- Contraction (Recession) is a period of declining economic activity, characterized by falling GDP, rising unemployment, and declining consumer confidence.
Types of Unemployment
- Cyclical Unemployment results from fluctuations in the business cycle, increasing during recessions and decreasing during expansions.
Causes of Inflation
- Monetary Inflation results from an excessive increase in the money supply.
Tools of Monetary Policy
- Quantitative easing is a monetary policy in which a central bank purchases longer-term securities from the open market to increase the money supply and encourage lending and investment.
Fiscal Policy
- Expansionary Fiscal Policy involves increasing government spending or decreasing taxes to stimulate economic activity.
- Contractionary Fiscal Policy involves decreasing government spending or increasing taxes to slow down economic activity and control inflation.
Aggregate Supply and Aggregate Demand (AS-AD) Model
- Aggregate Demand (AD) is the total demand for goods and services in an economy at various price levels.
- Aggregate Supply (AS) is the total supply of goods and services in an economy at various price levels.
Aggregate Supply Curve
- Short-Run Aggregate Supply (SRAS) typically slopes upward, reflecting the stickiness of wages and prices.
- Long-Run Aggregate Supply (LRAS) is vertical at the potential output level, representing the economy's capacity when all resources are fully employed.
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