Macroeconomics

• ·       National income accounting: measures economic activity as it involves measuring an economy’s national income or value of output.
• ·       National income: the total amount of money within a country
• The circular flow of income: a simplified illustration that shows the flow of income and expenditures in an economy.
• injections: money flowing in
• Leakages: income not spent on domestic goods and services:
• Gross domestic product (GDP): the total value of all final goods and services produced in a country over a time period (usually a year). It includes spending by the 4 components, C + I + G + (X-M ). It is one of the most used measures of the value of aggregate output.
• The expenditure approach adds up all spending to buy final goods and services produced within a country over a time period
• ·       The income approach adds up all income (payments) earned by the factors of production that produced all goods and services within a country over a time period.
• ·       The output approach calculates the value of all final goods and services produced in a country over a time period.
• ·       Consumption spending (C): all purchases by households on final goods and services in a year (except housing).
• ·       Investment spending (I): Spending by firms on capital goods (buildings, machinery, equipment, etc)
• ·       Net exports (X-M): to the value of all exports (X) (goods/services produced within the country and sold abroad) minus the value of all imports (M) (good/service produced abroad and purchased in home country), measuring domestic output.
• ·       GNI: is the total income received by the residents of a country.
• ·       Nominal value: is money value, or value measured in terms of prices that exist at the time of measurement.
• Real value: is a measure of value that takes into account changes in prices over time (considers inflation).
• Real GDP and real GNI: the total value of all final goods and services produced in an economy in a given period of time, adjusted for inflation. When a variable is being compared over time, it is important to use real values.
• Purchasing power parity: the amount of a country’s currency that is needed to buy the same quantity of local goods and services that can be bought with US$1 in the United States.
• Business cycle refers to the changes in real GDP that occur in an economy over time (actual growth).
• ·       The term full employment does not mean that all resources including all labour resources are employed to the greatest extent possible as there is still some unemployment known as the ‘natural rate of unemployment’.
• Aggregate demand: is the total quantity of aggregate (total) output, or real GDP, that all buyers (consumers, firms, government, foreigners) in an economy want to buy at different possible price levels, ceteris paribus.
• Aggregate supply: is the total quantity of goods and services produced in an economy (real GDP) over a particular time period at different price levels.
• ·       A deflationary gap occurs when real GDP < potential GDP: Unemployment > NRU due to insufficient AD for firms to produce potential GDP. There is spare capacity.
• ·       Full employment level of real GDP/potential output is when AD = SRAS curve at the level of potential GDP, Unemployment = NRU. There is no deflationary or inflationary gaps
• In the AD-AS model, the macroeconomic equilibrium level of output (national income) occurs where aggregate demand intersects aggregate supply.
• Economic growth: refers to an increase in real GDP, or the real quantity of goods and services produced over a period of time (typically a year).
• Short-term growth: increase in real GDP over relatively short periods of time:
• Long-term growth: increase in real output over relatively long periods of time.
• ·       Unemployment: refers to people of working age who are actively looking for a job but who are not employed.
• ·       Underemployment: referring to people of working age with part-time jobs when they would rather work full time, or jobs that do not make full use of their skills and education.
• ·       Employment: refers to the economic use of labour as a FOP
• ·       Full employment: describes the ideal situation when everyone in the economy who is willing and able to work has a job.
• ·       Labour force: the number of people who are employed (working) plus the number of people of working age who are unemployed (not working but seeking work).
• 1.     Labour market rigidities:

  Definition: are factors preventing the forces of supply and demand from operating in the labour marketing.
• Structural Unemployment:

   

  Definition: occurs when there is a mismatch between the supply and demand for a particular set of labour skills.
• Inflation: a sustained increase in the average price level of goods/services in an economy.
• Consumer Price Index (CPI):

  ·       is a measure of the cost of living for the typical household.
• 1.     Demand pull Inflation:

  Þ    Caused by excess demand in an economy.

  Þ    Increase in PL due to an increase in AD.

  Þ    Brough by determinants of AD.
• 1.     Cost-Push inflation:

  Þ    Caused by increases in the costs of production in an economy.

  Þ    Increase in PL due to fall in SRAS.
• Deflation: a sustained decrease in the general price level.
• Disinflation: is a deceleration or reduction in the rate of inflation i.e. the general level of prices is rising but at a slowing rate.