Basic Macroeconomic Terminology

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28 Οκτ 2013 (πριν από 4 χρόνια και 11 μέρες)

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Basic Macroeconomic Terminology


Gross Domestic Product (GDP):

the market value of all final goods and services produced in a year within a
country' borders.

Expenditure approach:

GDP = C + I + G + X where C is gross private domestic consumption, I is gro
ss private
domestic investment, G is gross public consumption and investment and X is net exports (exports
-

imports).

Gross National Product (GNP):

the market value of all final goods and services produced in a year by nationally
owned resources regardles
s of location. GNP = GNP + receipts of factor income from the rest of the world
-

payments of factor income to the rest of the world.

Nominal GDP (NGDP):

measures output (GDP) in terms of its current dollar value.

Real GDP (RGDP):

measure output (GDP) by
eliminating the influence of price changes from the nominal GDP
statistics.

Price index:

measures price level changes over time.

GDP
deflator
price index:
measure of prices across the economy that reflects all of the categories of goods and
services includ
ed in GDP.

Consumer price index (CPI):
measure of the average price of goods and services purchased by the typical
household.

Producer price index (PPI):

measure of average prices received by producers.

Cost of Living Adjustment (COLA):

increase in wages t
hat is designed to match increases in prices of items
purchased by the typical household.

Inflation:

a sustained rise in the average level of prices


Demand
-
pull inflation:
inflation caused by increasing demand for output


Cost
-
push inflation:

inflation ca
used by rising costs of production


Disinflation:

a positive inflation rate that decreases over time


Deflation:

a negative rate of inflation

Business cycle:

the rise and fall of real GDP over time.


Recession:

a period in which real GDP falls (must be at
least two consecutive quarters)


Depression:
a severe, prolonged economic contraction


Expansion:
a period in which real GDP increases

Unemployment rate:
the percentage of the labor force that is not working

Types of Unemployment:


Frictional Unemployment
:

due to short
-
term movement of workers between jobs.

Structural Unemployment:

caused by changes in technology or the structure of the economy.

Cyclical Unemployment:

arises because of the business cycle.

Natural Rate of Unemployment (NRU):
the unemployme
nt rate that exists in the absence of cyclical
unemployment.

Relates unemployment to real GDP.

Non
-
Accelerating Inflation Rate of Unemployment (NAIRU):

the unemployment rate that exists with price
stability. Relates the unemployment rate to the inflatio
n rate.

Potential RGDP:
The maximum long
-
run sustainable level of output. The output produced at the natural rate of
unemployment.

Aggregate Demand (AD):
reflects the relationship between aggregate expenditures and the average price level.
The factors t
hat influence AD are C, I, G and X as referenced as the expenditure approach.

Aggregate Supply (AS):
reflects the amount of output produced at different price levels.

Short run AS (SRAS):

output production can be greater than, less than or equal to pote
ntial RGDP. The SRAS
becomes steeper as the economy approaches capacity or potential RGDP.

Long run AS (LRAS):

output production equal to potential RGDP, or the long
-
run capacity of an economy. To
increase LRAS, an economy must permanently increase prod
uction capacity through technology improvements,
availability of resources and/or the improvement of the quality of resources.

Equilibrium:

the point where AD=AS. Long run equilibrium occurs when AD=SRAS=LRAS and the rate of
unemployment equals the natur
al rate of unemployment.



LRAS SRAS


P





AD



RGDP

Neutrality of Money:

Changes in the money supply has no long run real effects on the economy (i.e. cannot
expand potential real GDP)