1. Unit 4: Macroeconomics study of how ________________of an economy ___________________. all the parts work together

2. Gross Domestic Product (GDP) - ________________of all __________________________ produced in a country in __________ Recession - __________in real GDP lasting for at least _____________ Expansion - period of _______________from a _________________ Consumer Price Index (CPI) - used to _______________________ for market basket of goods Inflation - ___________in the __________________level of ______________ Deflation – _________________in the ______________________of goods and services Stagflation - ____________________of stagnant economic _______________ and _____________________ Unemployment rate - ______________of _________________individuals divided by total # of ________________in ____________________ total value goods and services 1 year decline 6 months recovery recession measure price changes rise general prices decrease average price combination growth inflation ratio unemployed peoplethe workforce

3. I. Measuring Economic Activity A. Gross Domestic Product – ______ 1.__________ of all ________ goods and services. Example: There is no need to count the output of the steel industry, which is an "intermediate" input, because the value of the steel will be counted in cars, refrigerators, buildings and all the other final uses of steel. 2. More goods & services = ___________economy (usually) 3. Per capita GDP: ______________________ GDP Total valueFINAL healthier GDP/Population

5. http://www.slatev.com/video/what-exactly-gdp/

6. Inflation is an increase in the average price level in the economy. A positive rate of inflation does not mean that every single price increases, nor that all prices increase by the same amount, nor that the price of some goods didn't fall. It represents an average price increase for the goods and services in the economy.

7. B.Consumer Price Index – _____ 2010: Feast for 10 = $43.47 2011: Feast for 10 = $49.20 CPI 1.CPI measures changes in prices. 2. It uses a “market basket” of goods and services to compare prices from one time period to another. 3. Changes in the CPI are used to measure inflation. 4. Small amounts of inflation are good as it produces higher profits which increase employment. 5. When deflation occurs, then less profits are made and employment decreases. 6. Stagflation – prices and unemployment decrease. http://www.npr.org/templates/story/story.php?storyId=5568606

8. Business cycle – __________________ periods of __________ and ________________in an economy Expansion - period of _________________from a recession Peak - point where GDP stops going up; GDP is at its _________ Trough - point in time when real GDP stops declining and begins to expand; DGP is at its ____________ Recession - _____________in real GDP lasting for at least _________ Depression – ____________that lasts ___________________and causes a severe _________in GDP Alternatinggrowth recession recovery highest lowest Decline 6 months recessiona long time drop

9. II. Trade and Employment A. Net Exports 1. total # of ___________ ______ total # of ___________ 2. U.S. - negative net export (_______________) 3. more ____________= more $ flowing __________ the economy 4. more exports = the economy 5. more __________= more $ goes ________ 6. ___________net exports = signs of a ___________ economy Exports Imports trade deficit exportsINTO importsOUT Positive growing increase

10. III. The Business Cycle (ups / downs) A. Four Main Parts 1. Peak – high production; prices increase; high profit; inflation occurs; low unemployment 2. Recession (contraction) – production lowers; prices begin to drop; declining profits; unemployment rising 3. Trough – production, prices, and profits at their lowest; unemployment at its highest 4. Expansion (recovery) – production, prices, and profit increases; unemployment decreases; tax breaks *____________- decline in GDP for 6 months or more *____________- extended period of time recession depression

11. To say that net exports is negative is the same as saying that a. there is a capital investment deficit b. there is a trade deficit c. the exchange rate has depreciated d. there is a trade surplus

12. Which of the following might be a sign of economic trough? a. low unemployment b. recession c. high GDP d. stable CPI

13. The Consumer Price Index (CPI) is an indicator of.... a. the size of an economy b. the velocity of money c. the level of inflation or deflation d. the presence of a budget deficit or surplus

14. The total value of all final goods and services produced in an economy is called the a. consumer price index b. business cycle c. net exports d. gross domestic product

15. Consumers reduce spending because of a lack in confidence in the economy and the possibility of future unemployment. All else being equal, what effect will this have on the price level and GDP? a. both price and GDP will decline b. prices will increase; GDP will be the same c. both prices and GDP will increase d. prices will decrease, GDP will be unaffected

16. Gross domestic product is a method of calculating how much a country produces by adding which four spending categories? a. wages, rent, interest, dividends b. consumption, investment, government, net exports c. consumption, investment, government, business expenditures d. consumption, interest rates, government, net exports

17. W - X - Y - Z - Trough Recession Recovery Peak Trough Recession Recovery Peak

18. IV. Unemployment A. Unemployment rate 1. % of total _____________________not working 2. labor force = over _____who would ______________________ 3. not counted: a) _____________________ incapable b) _____________________ incapable c) choose not to work (___________________________) labor force 16like to work mentally physically stay at home parent

19. B. Types of Unemployment 1. ________________- based on the economy (__________________) i.e. - recessions = _______________ unemployment expansion = ____________ unemployment ex- home builders; mortgage lenders 2. ________________- _____________________________in the economy i.e. - jobs not coming back or limited ex - grocery store clerks; typewriter repair; telephone operator Cyclical business cycle higher lower StructuralComplete shifts

20. 3. ________________________- period between jobs i.e. - many factors why this happens ex - college graduate; being fired; voluntarily leaving 4. ______________________- changes throughout the year ex - lifeguard; ski instructor; construction worker; retail stores Frictional Seasonal

21. In your notes, write the type of unemployment represented in each picture.

22. Stephanie who is a veterinarian does not like her boss. She decides to leave her job and starts looking for another clinic. What type of unemployment is she experiencing? a. seasonal b. frictional c. structural d. cyclical

23. Unemployment that occurs as a result of a recession or an economic downturn is a. seasonal b. frictional c. cyclical d. structural

24. An ice delivery person during the 1930s is no longer needed. Technology in freezers have made this job obsolete. What type of unemployment is this? a. seasonal b. cyclical c. frictional d. structural

25. A concrete worker in Duluth, Minnesota does not work during the winter months, because the moisture from the snow will not allow the concrete to cure. What type of unemployment is this? a. seasonal b. cyclical c. frictional d. Structural

26. _______________________________- total quantity of goods/services demanded at different price levels ______________________________- total value of all goods/services that all firms would produce _______________________________________- central bank of the United States ___________________________________- actions by the Federal Reserve to expand or contract the money supply ____________________________________________ – part of the Fed that regulates money supply by buying or selling government securities Aggregate Demand Aggregate Supply The Federal Reserve (Fed) Monetary Policy Federal Open Market Committee (FOMC)

27. __________________________________- formula used to compute the amount of a bank’s required reserves _______________________________- policy resulting in higher interest rates & restricted access to credit ______________________________- policy resulting in lower interest rates & greater access to credit ________________________________– the Fed buys and sells gov’t bonds in order to regulate money supply ________________________________- interest rate that the Fed charges on loans to banks Reserve requirement “Tight money” policy “Easy money” policy Open Market Operations Discount Rate

28. Monetary policy involves regulating the money supply, banks and the overall financial system. Monetary policy is conducted by a central bank which in the United States is called the Federal Reserve. When the economy is in a recession central bank officials will use expansionary monetary policy which seeks to reduce interest rates by expanding the supply of money in the economy. In turn, the lower interest rates will encourage additional aggregate demand for consumption and investment, and thus help shorten or end the recession. When an economy is experiencing inflation central bank officials will use contractionary monetary policy, which seeks to raise interest rates by contracting (or reducing the rate of growth in) the money supply.

29. V. The Federal Reserve System A. The 'Fed' 1. fiscal vs. monetary policy 2. _________________for the US 3. owned by _______________ B. Monetary Policy 1. control of the _______________ 2. control ____________(price stability) 3. encourage ___________________ 4. motivation to ______________ Central bank government money supply inflation consumer spending save

30. C. Organization of the Fed 1. independent of 3 branches -annual report to _______________ 2. headed by _____________________ -chairman: ______________________ -appointed by ________________ 3. Federal Open Market Committee (________) -oversee open market operations 4. ______________banks 5. __________ banks Congress Board of Governors Ben Bernanke the President FOMC 12 Regional Member

31. D. Monetary Policy (3 tools) 1.____________________- __________ required for banks to ______on hand rather than _____________ -% set by Fed (10% __________, 90% ___________) -least used tool - __________reserve requirement = ______in circulation - i.e. ‘__________money' policy - ________reserve requirement = ______in circulation - i.e. ‘_______money' policy Reserve Requirement money keep loan to customers reserveloan out higherless tight lower more easy

32. 2. _______________(window) - __________ that banks pay the Fed to borrow $ -Fed is a “_____________” -________________ borrow from banks (interest rate) -_________ discount rate = __________interest rates -________interest rate = ______saving; _____borrowing -_________interest rate = ___________in $ supply - ________________________ Discount RateInterest rate Bank for banks People/businesses higher moreless higherdecrease “tight money” supply

33. 3. _______________________- sale or purchase of US treasury __________________ -___________= 'I.O.U' investment -Fed _____securities (bonds) = ________money supply i.e. - ______$ is invested and _______is spent in the market discount rate ________along with __________rates -Fed _______securities = ‘______money' policy -Fed _______securities = puts $ into economy i.e. ‘_______money' policy Open Market Operations Bonds (aka T Bills) Bond sells lowers moreless rises interest selling tight buys easy

34. 'tight money' policy: 'easy money' policy: GHJ FI K

36. Tools of the Federal Reserve System (Monetary Policy) Boost the Economy = ____________ bonds ____________ interest rates (bank to consumer) ____________ reserve requirement (last resort) ____________ discount rate (the Fed to banks) Cool off the Economy = ___________ bonds ___________ interest rates (bank to consumer) ___________ reserve requirement (last resort) ___________ discount rate (the Fed to banks) buy lower sell higher

37. Board of Governors Federal Open Market Committee 12 Regional Federal Reserve Banks Numerous Member Banks

38. Review of Monetary Policy -Increase in interest rates = ______________ money supply -Federal Reserve selling gov't securities (bonds) = ____________ money supply -Decrease in the reserve requirement = ______________ the money supply -Money supply increases if interest rates ______________. -Increase in the discount rate = money supply to _________________. -Money supply increases if the Fed __________ securities on the open market -Increase in the money supply will lead the discount rate to _______________. -Decrease in the money supply if the reserve requirement _______________. lessen decrease increase decrease buys increase

39. When the Fed lowers the discount rate a. interest rates rise b. interest rates fall as well c. banks loan less money d. people save more

40. The Fed wants to pump more money into the economy in an effort to stimulate economic growth. Which of the following actions could the Federal Reserve take to increase the money supply? a. raise the discount rate b. raise the reserve requirement c. sell securities (bonds) d. buy securities (bonds)

41. Which of the following is a monetary policy that might be used to reduce inflation? a. decreasing taxation b. decreasing the discount rate c. open market selling of bonds d. increasing government spending

42. To stimulate the economy, the Fed decides to increase the amount of money in circulation. Which of the following actions will they be MOST LIKELY to take? a. raise the reserve requirement b. raise the discount rate c. sell bonds d. lower the reserve requirement

43. Which of these correctly completes the chart of the Federal Reserve System? A. Federal Reserve Chairman B. Federal Open Market Committee C. President of the United States D. Federal Deposit Insurance Corporation

44. VI. Aggregate Supply and Demand - AS - ________ of _______________ - AD - ________of ________________ Overall price level determined by AS and AD 1. AS = AD is ___________________ 2. AS exceeds AD = _________ i.e. overproduction = __________ 3. AD exceeds AS = ___________ i.e. prices rise = ___________ 4. If AS = AD, considered a ________ economy supply all products demand all products Macroeconomic equilibrium Surplus Prices drop Shortage inflation healthy

45. When aggregate supply exceeds aggregate demand, what most likely happens to prices in the market? a. increase b. market equilibrium c. decrease d. inflation

46. When aggregate supply increases, what most likely happens to prices and output in the market? a. increase, increase b. increase, decrease c. decrease, decrease d. decrease, increase

47. When aggregate demand increases, what most likely happens to prices and output in the market? a. increase, increase b. increase, decrease c. decrease, decrease d. decrease, increase