Macro 1

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Flashcards	15
Language	Deutsch
Category	Macro-Economics
Level	University
Created / Updated	22.05.2013 / 04.12.2014
Weblink	https://card2brain.ch/box/macro_1
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GDP (basic definition)

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The measure of aggregate output in the national income accounts.

3 ways of defining GDP

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1. GDP is the value of the final goods and services produced in the economy during a given period. 2. GDP is the sum of value added in the economy during a given period. 3. GDP is the sum of incomes in the economy during a given period.

Nominal GDP - Real GDP

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1. Nominal GDP is the sum of the quantities of final goods produced multiplied by their current price.

Nominal GDP increases over time because production and prices of most goods increase.

2. Real GDP is constructed as the sum of the quantities of final goods multiplied by constant (rather than current) prices.

GDP Growth

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( Y_t- Y_{t-1 )}
________
Y _t-1

+ growth: expansion
- growth: recession

Key variables in Microeconomics

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1. Economic performance (GDP & income)

2. Unemployment

3. Inflation

Labour force

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The labour force is the sum of employment and unemployment: L = N + U

Unemployment Rate

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unemployed people
————————— = u
people in the labour force

Participation rate

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labor force
————————
population of working age

Why care about Unemployment?

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• Because of its direct effects on the well-being (the welfare) of the unemployed.
• Because it provides a signal that the economy may not be using some of its resources efficiently.

Inflation - Deflation

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Rise in the price level
Decline in the price level

GDP deflator

Measures the average price of output
Index number

Nominal GDP_t $Y_t
P_t = _____________ = _____
Real GDP_tY_t

inflation rate

equals the GDP deflator

(P_t- P_t-1)
__________

P_t-1

CPI

Measure for price of consumption (also cost of living)

Why care about Inflation?

Inflation affects income distribution
It creates uncertainty --> negative impact on people's decisions

Aggregate output in economy (3 criteria)

Demand in the short run (few years)
Level of technology, capital stock, labour force in the medium run (decade)
Education, reaserch, saving, quality of government in the long run (half century)

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Macro 1

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