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Macroeconomics Review

Macroeconomics Review. The study of the economics of countries. The big picture. The Business Cycle. Upturn/Recovery. Business Cycle. Recession = when Real GDP decreases for a period of 6 months or more Bad Depression = when Real GDP has a steep decrease or last for a long time Really bad.

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Macroeconomics Review

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  1. Macroeconomics Review The study of the economics of countries. The big picture

  2. The Business Cycle Upturn/Recovery

  3. Business Cycle • Recession = when Real GDP decreases for a period of 6 months or more • Bad • Depression = when Real GDP has a steep decrease or last for a long time • Really bad

  4. Gross Domestic Product (GDP) • GDP is the value of everything made or done in a country over a year of time. • GDP is calculated by adding consumer spending, C, business investments, I, government spending, G, and exports minus imports, Xn. • GDP = C + I + G + Xn • Economy grows = GDP • Economy shrinks = GDP

  5. Gross Domestic Product (GDP) • There are two types of GDP: • GDP before inflation is measured = nominal GDP • GDP after inflation is measured and GDP is adjusted = real GDP = GDP - CPI • Inflation = an increase in the prices of goods and services • Deflation = a decrease in the prices of goods and services

  6. Consumer Price Index (CPI) • How do you figured out inflation? • You must figure out the Consumer Price Index (CPI) • CPI = Cost of today’s “Market Basket”/Cost of last year’s “Market Basket” x 100 • Market Basket = The typical cost of items an average family would buy in a month

  7. Consumer Price Index (CPI) • Growth occurs when GDP is bigger than CPI. • If it isn’t, stagflation occurs. • Stagflation is when the CPI is higher than GDP. • Stagflation is bad. • Cost-of-living adjustment • Your pay increases with inflation.

  8. Unemployment • Structural = you don’t have the skills necessary for available jobs • Frictional = you don’t have a job because you want a better job/pay than the available jobs offer • Seasonal = your job depends on the seasons/weather • Cyclical = you lose your job because of the Business Cycle

  9. Aggregate Supply and Demand • Aggregate Demand (AD) • Total amount of goods and services that all of the people in an economy are willing to buy. Price Level AD 0 Real GDP

  10. Aggregate Supply and Demand • Aggregate Supply (AS) • Total amount of goods and services that all producers in an economy are willing and able to make. Long-run (Limited by resources) Price Level Short-run 0 Real GDP

  11. Monetary and Fiscal Policy

  12. Monetary and Fiscal Policy • Monetary Policy = The amount of money available in the economy. • Fiscal Policy = The national economic growth and stability • Discount Rate = The interest rate the Federal Reserve charges banks to lend them money. • Reserve Requirement = The % of bank deposits that must be kept on hand at a bank for withdrawals.

  13. Budget Deficits and the National Debt • Budget Deficit = When the government spends more money then it takes in in taxes. • National Debt = When the government borrows money to cover the deficit from the budget. • The nation pays interest on the money it borrows to cover the budget deficit.

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