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Macroeconomics: Key Terms
This flashcard deck provides a concise overview of essential macroeconomics key terms. Designed for students, it covers fundamental concepts from GDP and inflation to fiscal and monetary policies, preparing you for exams and strengthening your foundational understanding of the economy.
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What is Gross Domestic Product (GDP)?
GDP is the total monetary or market value of all the finished goods and services produced within a country's borders in a specific time period, usually one year. It serves as a comprehensive measure of economic activity.
How is inflation typically measured?
Inflation is primarily measured by the Consumer Price Index (CPI), which tracks the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. Another measure is the Producer Price Index (PPI).
Differentiate between frictional and structural unemployment.
Frictional unemployment occurs when people are temporarily between jobs or are searching for new ones. Structural unemployment arises from a mismatch between the skills workers possess and the skills demanded by employers, often due to technological changes or shifts in industry.
What is Aggregate Demand (AD)?
Aggregate Demand is the total amount of goods and services demanded in an economy at a given overall price level and in a given time period. It is composed of consumption, investment, government spending, and net exports (C + I + G + NX).
Explain the concept of the short-run Aggregate Supply (AS) curve.
The short-run Aggregate Supply curve shows the total quantity of goods and services producers are willing and able to supply at alternative price levels, assuming input prices are sticky or fixed in the short run. It is typically upward-sloping.
What is fiscal policy and what are its main tools?
Fiscal policy refers to the use of government spending and taxation to influence the economy. Its main tools are government spending (e.g., infrastructure projects) and taxation (e.g., income tax rates).
Define monetary policy and list its primary tools.
Monetary policy involves managing the supply of money and credit to influence economic activity, typically conducted by a central bank. Its primary tools include open market operations, changing the discount rate, and adjusting reserve requirements for banks.
What are the four phases of the business cycle?
The four phases of the business cycle are expansion (growth), peak (highest point), contraction (recession), and trough (lowest point), representing fluctuations in economic activity.
What does an appreciation of a country's currency signify?
An appreciation of a country's currency means that its value has increased relative to other currencies. This makes its exports more expensive and imports cheaper, potentially impacting trade balances.
What is the primary difference between GDP and GNP?
GDP measures the total value of goods and services produced within a country's geographical borders. GNP measures the total value of goods and services produced by a country's residents, regardless of where they are located.
What is stagflation?
Stagflation is a condition characterized by slow economic growth (stagnation), high unemployment, and rising prices (inflation). It presents a significant challenge to conventional economic policy, as typical anti-inflation measures can worsen unemployment and vice-versa.
Explain the multiplier effect in macroeconomics.
The multiplier effect describes how an initial change in spending (e.g., government investment or consumption) leads to a proportionately larger change in overall national income. This occurs as the initial spending circulates through the economy.
What is the Consumer Price Index (CPI)?
The Consumer Price Index (CPI) is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care. It is calculated by taking price changes for each item in the predetermined basket of goods and averaging them.
What is the unemployment rate and how is it calculated?
The unemployment rate is the percentage of the labor force that is jobless. It is calculated by dividing the number of unemployed people by the total labor force (unemployed + employed) and multiplying by 100.
Briefly describe the concept of Net Exports (NX) in GDP calculation.
Net Exports (NX) represent the difference between a country's total exports and total imports of goods and services. A positive NX indicates a trade surplus, while a negative NX indicates a trade deficit, contributing to GDP as (Exports - Imports).