Macroeconomic Issues Overview

Factors include productivity, technological advancements, capital accumulation, and strong institutions.

Business cycles cause fluctuations in economic activity, leading to periods of growth (booms) and decline (recessions), impacting stability.

Inflation decreases the purchasing power of money, making goods and services more expensive over time.

<p>The main types are frictional, structural, and cyclical unemployment.</p> Signup and view all the answers

<p>The goals include achieving economic stability, fostering growth, and redistributing wealth through taxation and spending.</p> Signup and view all the answers

<p>Monetary policy regulates the money supply and interest rates to control inflation and maintain price stability.</p> Signup and view all the answers

<p>International trade affects domestic economies via trade patterns, exchange rates, and capital flows.</p> Signup and view all the answers

<p>Macroeconomic policies aim to reduce income inequality and poverty by promoting fair wealth distribution.</p> Signup and view all the answers

<p>A GDP growth rate of around 2% is considered healthy by economists, indicating stable economic growth.</p> Signup and view all the answers

<p>During the peak phase, economic indicators level off, and GDP growth begins to decline, transitioning towards contraction.</p> Signup and view all the answers

<p>During the contraction phase, businesses lay off employees, and the unemployment rate rises above normal levels.</p> Signup and view all the answers

<p>The trough is defined as the lowest point of the business cycle before the economy begins to recover and move towards expansion.</p> Signup and view all the answers

<p>'Irrational exuberance' refers to a state where investors become overly enthusiastic about rising stock prices, leading to overvaluation.</p> Signup and view all the answers

<p>During an economic contraction, the government may lower taxes and increase spending to stimulate the economy.</p> Signup and view all the answers

<p>The Federal Reserve influences the business cycle through monetary policy, adjusting interest rates to impact inflation and unemployment.</p> Signup and view all the answers

<p>Indicators of an overheated economy include an unemployment rate well below the natural rate and increasing inflation.</p> Signup and view all the answers

<p>The GDP growth rate during the peak preceding the 2008 recession was 2.4% in the third quarter of 2007.</p> Signup and view all the answers

<p>Tax and spending changes are used in fiscal policy to influence the economy by increasing or decreasing demand based on whether it is expanding or contracting.</p> Signup and view all the answers

<p>Demand-pull inflation occurs when aggregate demand exceeds aggregate supply, often due to increased consumer spending, business investment, or government expenditure.</p> Signup and view all the answers

<p>Cost-push inflation arises when production costs increase, such as wages or raw material prices, which in turn raises prices of goods and services.</p> Signup and view all the answers

<p>The wage-price spiral is a cycle where rising wages lead to higher production costs, prompting firms to increase prices, which in turn leads to demands for higher wages.</p> Signup and view all the answers

<p>Expansionary monetary policies increase the money supply and can stimulate spending, which may lead to inflationary pressures if demand outpaces supply.</p> Signup and view all the answers

<p>When consumers anticipate future price increases, they may demand higher wages or make purchases sooner, contributing to inflation through increased demand.</p> Signup and view all the answers

<p>Imported inflation occurs when the prices of imported goods and services rise, often due to changes in global markets or currency fluctuations.</p> Signup and view all the answers

<p>Market concentration can reduce competition, allowing firms to control prices more effectively, which may result in higher prices for consumers.</p> Signup and view all the answers

<p>Fiscal policies, such as deficit spending, can stimulate demand, but if not managed properly, they could also contribute to inflationary pressure.</p> Signup and view all the answers

<p>High inflation erodes purchasing power, decreasing the real value of money, which means individuals can buy fewer goods and services.</p> Signup and view all the answers

<p>High inflation creates uncertainty for planning future investments and increases costs of borrowing due to higher interest rates.</p> Signup and view all the answers

<p>Main tools include adjusting interest rates, open market operations, and modifying reserve requirements for banks.</p> Signup and view all the answers

<p>Central banks may raise interest rates to discourage borrowing and spending, which can help reduce inflation by lowering aggregate demand.</p> Signup and view all the answers

<p>Inflation can redistribute income by benefiting debtors, who repay loans with less valuable money, while harming fixed-income earners.</p> Signup and view all the answers

<p>To influence economic conditions through government spending, taxation, and borrowing.</p> Signup and view all the answers

<p>Increasing government spending raises aggregate demand, while decreasing it lowers demand.</p> Signup and view all the answers

<p>Tax cuts generally increase disposable income, leading to higher consumer spending.</p> Signup and view all the answers

<p>A budget deficit occurs when government spending exceeds its revenue.</p> Signup and view all the answers

<p>By reducing government spending or increasing taxes, contractionary fiscal policy can lower aggregate demand and help curb inflation.</p> Signup and view all the answers

<p>The four phases are expansion, peak, contraction, and trough.</p> Signup and view all the answers

<p>The Federal Reserve manages the business cycle through monetary policy.</p> Signup and view all the answers

<p>Economic contraction occurs when business production slows, leading to reduced consumer spending.</p> Signup and view all the answers

<p>Economic expansion is a period of increasing productivity and economic growth.</p> Signup and view all the answers

<p>The NBER uses quarterly GDP growth, monthly employment, real personal income, industrial production, and retail sales.</p> Signup and view all the answers

<p>A trough is the lowest point in the business cycle, marking the end of contraction.</p> Signup and view all the answers

<p>Institutional reforms enhance regulatory mechanisms, market competition, and transparency, which can control inflation.</p> Signup and view all the answers

<p>At the peak, economic activity reaches its highest point before transitioning to contraction.</p> Signup and view all the answers

<p>Confidence drives spending and investment; high confidence supports expansion, while low confidence leads to contraction.</p> Signup and view all the answers

Factors that lead to a country's long-term economic progress, considering productivity, technology, investment, and good governance.

Periodic ups and downs in economic activity, like booms and recessions, that affect many businesses and jobs.

A general increase in the prices of goods and services.

People who are actively looking for work but cannot find jobs.

Government policies using taxes and spending to influence the economy.

Central bank actions to control money supply and interest rates.

The exchange of goods and services across international borders.

The uneven distribution of income among different groups in society.

Inflation caused by an excess of demand in an economy over its supply.

Inflation caused by rising production costs, like wages and raw materials.

A cyclical process where higher wages lead to higher prices, which then lead to higher wages again.

Central bank actions to increase the money supply (e.g. lower interest rates, buying bonds).

The ability of money to buy goods and services decreases due to inflation.

Methods used by central banks to adjust the money supply and interest rates.

The cost of borrowing money, influenced by central banks to affect economic activity.

Central banks buying or selling government securities to influence the money supply.

The fraction of deposits that banks must keep in reserve to meet withdrawal demands.

Increasing interest rates or reducing the money supply to curb inflation.

Lowering interest rates or increasing the money supply to stimulate economic growth.

The rate at which a country's economy is growing, measured by the change in GDP over a period of time. Economists consider a rate between 2% and 3% to be healthy.

When an economy grows too fast, leading to high inflation and low unemployment.

When investors become overly optimistic about stock prices and believe they will continue to rise, even when there's little evidence to support it.

The highest point of economic activity in a business cycle. It happens before a contraction begins.

A period of economic decline, where GDP falls, unemployment rises, and businesses lay off workers.

The lowest point of economic activity in a business cycle, where GDP has stopped declining and is about to start growing again.

A period of significant economic decline, typically characterized by a contraction in GDP for at least two consecutive quarters.

A period of economic growth where production, employment, and consumer spending increase.

A period of economic decline where production, employment, and consumer spending decrease.

The forces of supply and demand, availability of capital, and consumer/investor confidence all play roles.

Governments manage the business cycle through fiscal policy (taxes and spending) and monetary policy (interest rates and money supply).

Increasing or decreasing government spending impacts aggregate demand. Increased spending can stimulate growth but may also fuel inflation.

Adjusting tax rates can impact disposable income and consumer spending. Tax cuts can boost spending, tax hikes can moderate demand.

Running deficits (spending more than revenue) or surpluses (revenue exceeding spending) can influence inflationary pressures.

Reduced government spending or increased taxes can help curb inflation by reducing aggregate demand.

Increased spending or tax cuts can stimulate economic growth but may also increase inflationary pressures.

Combining monetary and fiscal policies, long-term planning, and institutional reforms to maintain price stability and sustainable growth.