Unit 4 - Macro Economics Stephens

total of all (sum of all)

increased economic growth

(rising up on the business cycle)

(where we want to be)

economic growth levels off

(tip of the business cycle)

decreased economic growth

(going down on the business cycle)

recovery period

(bottom of the business cycle)

6 month decline in real GDP

increasing prices for goods and services

(normal in a growing economy)

1 - growth

2 - low unemployment rates

3 - stable prices

created the federal reserve bank

(1913)

(FED)

• board of governors

  • 7 individuals nominated by President and approved by congress

• district banks

  • 12 banks, 12 districts

  • we live in district 7

• GDP

• unemployment rate

• consumer price index (CPI)

measures the total value of all domestically produced goods/services

GDP=C+I+G+NX

c - consumer spending

I - investment (business)

G - government

NX - net exports (exports-imports)

numbers adjusted for inflation

numbers not adjusted for inflation

equal to 1 or 100

used for chained dollars

$ chained into a base year

population 16 and older

16 or older actively seeking however unable to find employment

unemployment rate=unemployed people/labor force

• used as a major indicator of the business cycle

lower unemployment suggests expansions

rising unemployment suggests contractions

normal, people between jobs

normal, unemployed because of market changes

normal, expected due to seasonal changes

caused by a downward movement in the business cycle, during a recession

natural unemployment=frictional unemployment + structural unemployment

• the Bureau of Labor Statistics calculates this every month, gets media coverage

• unemployment in April 2023 was 3.4% (relatively low)

decrease in prices for goods and services

• usually caused by overproduction or decreasing demand

• not good long term for an economy

the ability to purchase goods and services with your $

• inflation causes decrease

• fixed incomes

• savers

• lenders

• some investors

• borrowers

will happen when aggregate demand increases

• increase in money supply

will happen when productive resources increase in price

• productive resources (land, labor, capital)

• inflation causes inflation

excessive and increasing out of control, typically defined as 50% increase each month

standard measurement of inflation

• calculated by the Bureau of Labor Statistics

survey of prices of goods and services for atypical urban consumer (1982-84)

• products everyone would use (milk, eggs, gas)

decrease the money supply, not popular for consumers/workers

• monetary policy, fiscal policy

decrease money supply (Federal Reserve Bank)

• used to control inflation

increasing taxes

• used to control inflation

add money into circulation

• lower interest rates

  • rates which banks loan money to the public

• open market operations

  • buy bonds

• lower reserve ratio

  • lowers money banks are required to hold

expansion, peak, contraction, trough