Macroeconomics Review Domain IV Macroeconomics Review

Explain macroeconomics

Concepts and skills dealing with human behavior and choices as they relate to the entire economy.

What are the three goals of macroeconomics?

Steady economic growth, stable prices and full employment

Explain Gross Domestic Production

Refers to the total market value of all final goods and services produced within a country in a given time period.

What is the equation for Gross Domestic Production?

Consumer spending +investment in business+ government expenditures+ (net exports)

Explain Consumer Price Index (CPI)

The average price of a market basket of goods used to measure inflation

What type of economic activity is measures using changes in CPI?

The statistic measures the change in value of a basket of goods and services purchased by the average urban consumer.

Explain inflation

A sustained increase in the price level in an economy over time.

Explain real GDP?

The value of current gross domestic product adjusted for inflation.

Explain aggregate supply

Total supply of goods and services within a country

Explain aggregate demand

Total demand for goods and services within a nation

Which of the following shows a price level increase, real GDP Increase, and increase in aggregate demand? Graph A Graph B

Graph B

Which of the following shows a price level decrease, real GDP decrease, and decrease in aggregate demand? Graph A Graph B

Graph A

What is the equation for unemployment rate?

Take the number of unemployed people in the country divided by the number of people in the labor force and multiplying the quotient by 100.

List the four types of unemployment?

Cyclical, seasonal, structural, frictional

Explain cyclical unemployment

Most economies encounter periods of growth and recession Most economies encounter periods of growth and recession. People who are laid off as a result of a contracting economy

Explain structural unemployment

Exists when the skills of workers do not match the skills needed by the labor market, Ex. Professional pencil sharpener

Explain frictional unemployment

Occurs when someone leaves their job in search of another one, move to a new city,

Explain seasonal unemployment

Exist due to changes in seasons, Ex. Lawn care worker

Identify the 3 roles and functions of money

Medium of exchange, store of value, account/standard of value

Explain medium of exchange?

Money, or item must facilitate transactions between individuals, businesses, financial institutions, and governments in an economy.

Explain store of value?

Money, or item must hold its value over time

Explain unit of account/standard of value?

Money, or item provides a common measure of the value of goods and services being exchanged

Identify Letter A, B, C, and D

Letter A: Peak Letter B:Contraction Letter C:Trough Letter D: Recovery

Explains the Federal Reserve System

In control of monetary policy, the nation’s central bank, 12 different banks located throughout the United States

What is the significance of the Federal Open Market Committee (FOMC)?

Branch of FED that determines the direction of monetary policy, 12 members, 7 member of the Board of Governors, president of reserve bank of New York, 4 more reserve bank presidents.

What is the significance of the Board of Governors?

The 7 member are nominated by the President and confirmed by the Senate. They are the public part of the Federal Open Market Committee that makes monetary policy decisions

Explain monetary policy?

Refers to changes in the money supply (by the Federal Reserve System) of a nation in order to influence its economy

What are the three tools used by the Federal Reserve to implement monetary policy?

The reserve requirement, discount rate, open market operations

Describe the reserve requirement?

The Federal Reserve requires most financial institutions to keep a percentage of customer deposits in vault cash or as a deposit in their account with the Federal Reserve

Describe the discount rate?

The interest rate charged by the Fed, when lending to a financial institution

Describe open market operations?

the buying and selling of bonds determine the rate financial institutions charge each other in the overnight lending market.

Give examples of fiscal policy?

Refers to expenditures, taxes, and borrowing made by a government in order to influence an economy.

Explain budget surplus?

Exists when the amount of income received exceeds the amount of expenses paid.

Explain national debt?

A country is the accumulation of annual deficits over the years plus any interest accrued on the money borrowed.

How does a government surplus impact national debt?

A government surplus lowers the national debt

How does a government deficit impact national debt?

A government deficit increase the national debt

How does an increase in government taxing impact economic growth? Price Levels Real GDP Unemployment

Price levels fall, real GDP falls, unemployment rises

How does an increase in government spending impact economic growth? Price Levels Real GDP Unemployment

Price levels rise, real GDP rises, and unemployment decreases