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Macro 1

Introduction

Introduction

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Flashcards 15
Language Deutsch
Category Macro-Economics
Level University
Created / Updated 22.05.2013 / 04.12.2014
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GDP (basic definition)

 

The measure of aggregate output in the national income accounts.

3 ways of defining GDP

 

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

 

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

   ( Yt - Yt-1 )
   ________
          Y t-1

+ growth: expansion
- growth: recession

Key variables in Microeconomics

1. Economic performance (GDP & income)

2. Unemployment

3. Inflation

Labour force

 

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

Unemployment Rate

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

Participation rate

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

Why care about Unemployment?

 

• 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

  • Rise in the price level
  • Decline in the price level

GDP deflator

  • Measures the average price of output
  • Index number

          Nominal GDPt             $Yt
Pt =   _____________  =  _____
             Real GDPt                   Yt

inflation rate

  • equals the GDP deflator

(Pt   - Pt-1)
__________

      Pt-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)

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

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