Unit 3 Macroeconomics

Unit Vocabulary Gross Domestic Product Aggregate Supply Business Cycle Consumer Price Index Unemployment Rate Monetary Policy Fiscal Policy Interest Rates Discount Rate Reserve Rate Open Market Operations Aggregate Demand Aggregate Supply Inflation Deficit Real Nominal Structural Unemployment Cyclical Unemployment Frictional Unemployment

How do doctors measure our health? Tools to measure the economy: Gross Domestic Product – total value of all FINAL goods and services produced WITHIN the United States Only final goods counted to avoid double counting Includes all Consumer goods (C) + Investments (I) + Government Purchases (G) + Net Exports (Exports – Imports)  CIGNX Measured usually over 1 year Real v Nominal: Nominal is GDP in current prices, Real is GDP adjusted for inflation

Consumer Price Index Price index that measures the cost of a particular “basket” or group of goods Compares the value of the basket in one time period to a particular base year Measures price increases or “inflation” Inflation is an increase in the overall average of prices in the economy

Unemployment Rate What does it mean to be UNEMPLOYED? What causes unemployment? How can we fix unemployment?

Unemployment occurs when people want jobs but can’t find them People are in the labor force if they are 16 – 62 and are ACTIVELY SEEKING work Unemployment rate is the number of people who are unemployed / the # of people in the labor force

3 Types of Unemployment Frictional: people are temporarily out of a job but will be working again soon Ex. People who quit 1 job to go to another, seasonal employees Structural: people are unemployed because their job skills are no longer needed Ex. Employees at a car plant when new technology is brought in Cyclical: people who are unemployed due to drops in the business cycle Business cycle is the pattern of contractions (recessions) and expansions (growth) in the economy Recession is at least 6 months of decline in economic growth

Business Cycle Peak Contraction Expansion Trough 4 Stages: Bottoming out & move into expansion Trough