Econ

• Gross Domestic Product (GDP)


  Total amount of output produced in an economy in a year
• Things not counted in GDP calculations

  • Intermediate Goods
  • Used Goods
  • Unpaid Labor
  • Illegal or under-the-table trade
• Durable Goods


  Goods that are produced and can be used for a long time (>3 years)
• Nondurable Goods


  Goods and services that are used up soon after they are produced
• Real GDP

  Gross Domestic Product measured in constant dollars (based on a base year)
• Nominal GDP


  Gross Domestic Product measured in current dollars
• Nominal GDP rises with

  An increase in prices (inflation) OR an increase in output
• Real GDP rises


  Only due to output increasing
• GDP per capita


  Real GDP divided by the number of people in the economy
• Unemployment: People who are able, available and willing to work but who cannot find work despite an active search for work in the past 4 weeks
• Unemployment Rate


  Number of unemployed divided by the number in the labor force
• Labor Force


  Employed + unemployed (people not currently seeking employment are not counted)
• Labor Force Participation Rate


  Number in the labor force divided by the working age population
• Types of Unemployment


  • Frictional (voluntarily in between jobs)
  • Seasonal (due to the nature of the worker's usual line of work)
  • Cyclical (due to recession temporarily reducing production)
  • Structural (due to changes in the structure of the economy)
• Causes behind cyclical unemployment: sticky downwards wages
• If wages are sticky

  Falling labor demand would manifest as unemployment rather than lower wages
• Inflation


  When prices are, on average, rising over time
• Deflation


  When prices are, on average, falling over time
• Hyperinflation

  Very rapid inflation
• Disinflation


  Rising prices but falling inflation rates
• Stagflation


  Recession (stagnation) plus high inflation
• Interest Rates


  The cost of borrowing money from a bank
• Fisher Equation


  Relates real interest rates, nominal interest rates, and inflation
• Consumer Price Index (CPI)

  Tries to capture an average of prices paid by consumers for goods and services using a basket of goods (Base year = 100)
• GDP Deflator


  Captures prices paid by everyone for everything that's produced (i.e. no basket)
• Issues with CPI: substitution bias and quality/new good bias
• Growth Accounting


  Breaking down economic growth into components like knowledge, labor productivity, capital productivity, and total factor productivity
• Sources of Economic Growth


  • More Inputs (labor, capital, natural resources)
  • More Inputs per worker
  • Total Factor Productivity (and Knowledge)
• Specific examples that might lead to labor or capital productivity growth include education, training, science/R&D, infrastructure, and institutions
• Rising prices but falling inflation rate is known as disinflation in the economy
• Sticky wages lead to involuntary unemployment when labor demand falls, rather than lower wages
• Structural unemployment is due to changes in the structure of the economy, such as AI automation or the decline of certain jobs due to the pandemic
• Macroeconomic policy tools are primarily used to boost aggregate demand, but may be less effective for addressing structural unemployment
• Components of Aggregate Demand


  • Consumption
  • Investment
  • Government Spending
  • Exports
  • Imports
• Disposable Income


  Income plus transfers from the government minus taxes
• Marginal Propensity to Consume


  How much consumption changes when disposable income changes
• Marginal Propensity to Save


  How much saving changes when disposable income changes
• Multiplier Effect


  Each dollar of government spending can raise aggregate demand by more than a dollar
• Components of the AD/AS Model

  • Aggregate Demand
  • Short-Run Aggregate Supply
  • Long-Run Aggregate Supply
• The Phillips curve illustrates an inverse relationship between inflation and unemployment