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Macroeconomics (The Business Cycle (Aggregate output is the economy’s…

- - - - A rising aggregate price level is inflation.
      - A falling aggregate price level is deflation.
      - Affected members
        
        Helped by Inflation
        
        Flexible Income Receivers
        
        Social Security Incomes - SS is linked to CPI
        
        Debtors (Pay back same amount of money, but it’s not as worth as much anymore so they are really paying less)
        
        Hurt by Inflation
        
        Fixed Income Receivers/Minimum Wage Workers
        
        Elderly living from pension
        
        Landlords
        
        Savers (Purchasing Power of Savings Decrease)
        
        Creditors (Price ^ means value of $ ∨)
      - Price Index
        
        A measure of the price of a specified collection of G/S “market basket” in a given year compared with a identical “basket” of G/S in a reference year
        
        PI = (Price of Market Basket/Price of Market Basket in Base Year) * 100
        
        PI=Nom/RealGDP
    - - two general sources of economic growth
        
        An increase in an economy’s resources.
        
        Progress in technology.
    - - Calculate
        
        GDP=C+Ig+G+(Xn)
        
        Personal Consumption Expenditures (C)
        
        Consumption by households
        
        Gross Private Domestic Investment (Ig)
        
        All final purchases of machinery, tools, equipment by a business
        
        Government Purchases (G)
        
        Net Exports (Xn)
        
        Net Exports (Xn) = exports (X) – imports (M)
      - the total market value of all final goods and services produced in a given year.
        
        Includes all G/S produced by either citizen-supplied or foreign-supplied resources employed within a country.
        
        types of goods
        
        Intermediate goods – goods and services that are purchased for resale or for further processing/manufacturing.
        
        Final goods – goods and services that are purchased for final use by the consumer.
        
        GDP only counts final goods – otherwise we end up multiple counting
        
        excluded from gdp
        
        Financial Transactions
        
        Public transfer payments – social security, welfare, veteran’s payments
        
        Private transfer payments – birthday money from grandma and grandpa
        
        Stock Market transactions – exchange of paper
        
        Secondhand Sales
      - Nominal GDP – measure in terms of the price level at the time of measurement (P X Q)
      - Real GDP – has been deflated or inflated to reflect price changes
        
        Real=Nom/PI
        
        So Real is changed to negate difference of Inflation/Recssion
    - - Aggregate Demand
        
        Determinants (Same as GDP)
        
        Consumption
        
        Investment
        
        Government Spending
        
        Net Exports
        
        Downward Sloping Because:
        
        Wealth Effect
        
        As the average price level rises, the purchasing power of wealth and savings begins to fall. Higher prices therefore tend to reduce the quantity of domestic output purchased
        
        Interest Effect
        
        If the average price level rises, consumers and firms might need to borrow more money for spending and capital investment, which increases the interest rate and delays current consumption. This reduces current consumption of domestic production as the price level rises.
      - Aggregate Supply
        
        SRAS (Short Run Aggregate Supply)
        
        Determinants
        
        Productivity
        
        Inputs
        
        Government Regulation
        
        LRAS (Long Run Aggregate Supply)
        
        Only changes when technological advancement
      - Gaps
        
        Inflationary
        
        Recessionary
  - - - The unemployment rate is the percentage of the labor force that is unemployed.
        
        Unemployed/Total Labor Force
      - Types of Unemployment
        
        Frictional
        
        Unemployment due to time workers spend in job search
        
        (in between jobs, seasonal worker, first timer)
        
        Structural
        
        More people are seeking for a job than are necessary
        
        Cyclic
        
        Unemployment during recession
        
        Will Always be part of the economy: Frictional and Structural
  - - - Monetary Policy
        
        Changes money supply
        
        Sell Bonds
        
        Higher Discount Rate
        
        Higher Federal Funds Rate
      - Fiscal Policy
        
        Decrease Spending
        
        Increase Taxes
    - - Monetary Policy
        
        Lower Federal Funds Rate
        
        Lower Discount Rate
        
        Buy Bonds
      - Fiscal Policy
        
        Decrease Taxes
        
        Increase Spending
        
        Could Lead to Crowding Out Effect
        
        Crowding Out Effect
        
        Government Spends ->
        
        Government Deficit ->
        
        Government Borrows ->
        
        1 more item...
- - - - Taste in preference
      - Related Goods (Substitutes and Compliments)
      - Income
        
        Normal Good
        
        Brand
        
        Demand up when income up
        
        Inferior Good
        
        Off-brand
        
        Demand up when Income down
      - Buyers (number of buyers)
      - Expectations for the future
  - - - Resources (inputs)
      - Other Goods
      - Technology
      - Taxes/Subsidaries
      - Expectations
      - Number of Sellers
  - - - Protects consumers, especially in times of crisis where people can't afford to pay as much
      - Enables consumers to buy essential goods/services
      - Results in shortage of goods/services because S < D
      - Can lead to some consumers resorting to the black market since what they want is so scarce
      - maximum price sellers are allowed to charge for a good or service
      - below Eq price point
      - Suppliers don't profit as much => less efficiency = lower quality
    - - minimum price buyers are required to pay for a good or service
      - above Eq price point
      - Protects producers
      - Used when the Free Market doesn't provide sufficient income to sellers
      - Results in surplus, since S > D
      - Minimum Wage for example
      - lead to inefficient allocation of sales among sellers: those who would be willing to sell the good at the lowest price are not always those who actually manage to sell it
      - offers high quality products at high quality price even if consumers prefer low quality products for lower prices
    - - deadweight loss occurs when a market is not perfectly competitive—the price is greater and the quantity is lower than in a perfectly competitive market structure
        
        missed opportunity, inefficiency
        
        between quota line and Eq
      - always to left of Eq point
      - drives a wedge between supply and demand
      - demand price > supply price
- - - - how the economy actually works
    - - how the economy should work
- - - - An economy is efficient in production if it produces at a point on its PPF.
      - An economy is efficient in allocation if it allocates its resources so that consumers are as well off as possible.
        
        MC=MB
    - - An individual has a comparative advantage in producing a good or service if the opportunity cost of producing the good is lower for that individual than for other people.
        
        Trade can be beneficial to both even if one has an absolute advantage in the production of both goods.
        
        more production of items in a shorter amount of time
        
        Specialization can lead to ^^^^
      - An individual has an absolute advantage in an activity if he or she can do it better than other people.
      - Having an absolute advantage is not the same thing as having a comparative advantage.
- - - - Military
      - Homemakers
      - Students
      - Below 16
      - Capable, but not seeking employment
  - - - THEY MUST:
        
        Not be Working
        
        Actively Looking
        
        Able to Work