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Macroeconomics: GDP, Inflation, Fiscal & Monetary Policy

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How economists measure and manage the whole economy.

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Macroeconomics

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  1. 1Macroeconomics
    A branch of economics dealing with the performance, structure, and behavior of an economy as a whole
  2. 2Three central macroeconomic variables
    Output (GDP), unemployment, and inflation
  3. 3GDP
    Gross Domestic Product
  4. 4Nominal GDP
    GDP measured at current prices
  5. 5Real GDP
    GDP adjusted for inflation, measured at constant prices
  6. 6Expenditure approach to GDP
    GDP = Consumption + Investment + Government Spending + Net Exports (C + I + G + NX)
  7. 7Consumption in GDP
    Household purchases of goods and services, including residential housing
  8. 8Investment in GDP
    Business spending on capital goods, equipment, and labor for production
  9. 9Government spending in GDP
    Government purchases of goods and services (excludes transfer payments)
  10. 10Net exports
    Exports minus imports (EX - IM)
  11. 11GNI
    Gross National Income - GDP plus net factor incomes from abroad
  12. 12GDP deflator
    A measure comparing nominal GDP to real GDP, indicating inflation level
  13. 13A GDP deflator of 100
    No inflation or deflation
  14. 14A GDP deflator above 100
    Price inflation is occurring
  15. 15Unemployment
    The percentage of the labor force actively seeking work but unable to find jobs
  16. 16Labor force
    All people employed or actively seeking employment
  17. 17Natural rate of unemployment
    The structural unemployment rate in medium-run equilibrium (when cyclical unemployment is zero)
  18. 18Cyclical unemployment
    Unemployment caused by economic downturns or business cycle fluctuations
  19. 19Frictional unemployment
    Temporary unemployment during job search and matching processes
  20. 20Structural unemployment
    Unemployment from mismatch between workers' skills and job requirements
  21. 21Okun's Law
    An empirical relationship showing that higher GDP growth leads to lower unemployment
  22. 22Inflation
    A sustained increase in the general price level
  23. 23Deflation
    A sustained decrease in the general price level
  24. 24Price index
    A measure tracking changes in the price level over time
  25. 25What causes inflation according to demand factors?
    Too much aggregate demand leading to overheating and price increases
  26. 26Supply shock
    A sudden change in the supply of goods or resources (e.g., oil price spike)
  27. 27Phillips Curve
    The inverse relationship between inflation and unemployment (short-run)
  28. 28Quantity theory of money
    The theory that price level changes are directly caused by changes in money supply
  29. 29Monetary policy
    Central bank actions to control money supply and interest rates
  30. 30Fiscal policy
    Government use of taxation and spending to influence the economy

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