GDP

The total MONETARY value of all FINAL goods and services produced DOMESTICALLY within a YEAR.

GNI

The total income of a nation’s people and businesses. GNI = GDP + (Inflows - outlfows)

Nominal GDP vs Real GDP

nominal: GDP/GNI measured in current prices that does not account for inflation. real: GDP/GNI that is adjusted for inflation.

Business Cycle

AD non price determinants (Consumption)

Consumer Confidence Unemployment Taxes Interest Rates Wealth Indebtedness Future Expectations

AD non price determinants (Investment)

Interest Rates Business Confidence Technology Business Taxes Corporate Indebtedness

AD non price determinants (Government and Net exports)

gov spending Income of Trading Partners Exchange Rates Change in Trade Policies Health and Safety Requirements

Natural rate of Unemployment (full employment)

The rate of unemployment that occurs when the economy is producing at its potential output or full employment level of output.

SRAS Non price determinants

Cost and availability of resources Gov intervention: subsidy, taxes, regulation Supply shocks

Neo classical

Assumes prices are flexible in the long-run. Didn't do well at prediction as prices and wages tended to be "sticky" (don’t change immediately to changes in supply/demand) Enforces the idea that the market will fix itself and return to equilibrium (Full Employment).

Keynesian

States that wages/prices are "sticky" meaning they are slow to change due to labor laws, contracts, salaries, etc. Argues the economy gets stuck in a short-run position. (Only one Aggregate Supply Curve)

Shifts in LRAS

Change in Quality or Quantities of Factors of Production Technological Improvements Increase in Efficiency Changes in Institutions

Recessionary gap

When the equilibrium level of real output is less than potential output as a result of a decrease in AD.

Inflationary gap

The case where equilibrium real output exceeds potential output as a result of an increase in AD.

Cost push inflation

Inflation as a result of an increase in costs of production in the economy (Increase in price of raw materials, imports, or labour). Price Level is PUSHED UP.

Demand pull inflation

Inflation as a result of an increase in AD (C, I,G, Xn). Price Level is PULLED UP

Typed of unemployment

disequilibrium: - cyclical: unemployed in a recession due to decreased AD - real wage: wages are forced above equilibrium, creating excess supply of labor Equilibrium (natural rate of unemployment) - structural: immobility of labor - Frictional: in between jobs - seasonal: temp change ind demand for labor

The Gini Coefficient

Measure of distribution of income within an economy. This coefficient is usually used to determine the level of income inequality. The higher the Gini - the more unequal the income distribution The lower the Gini - the closer to income distribution equality

Monetary policy

The activities conducted by a central bank using the money supply and interest rates to regulate an economy.

Money supply

total amount of money in circulation in an economy

Goal of monetary policy

Low/stable inflation low unemployment growth and stability external balance: imports=exports

expansionary monetary policy

during a recession: recessionary gap, money supply increase, lower interest rates, return to equilibrium

contractionary monetary policy

during an expansion: inflationary gap, money supply decrease, rising interest rates, return to equilibrium

Fiscal Policy

The term for when the government intervenes in the market using taxation or government spending.

Budget

The government creates a budget yearly that outlines their revenue and how they plan to spend money. Budget Deficit = Government Spending > Government Revenue Budget Surplus = Government Spending < Government Revenue Balanced Budget = Government Spending = Government Revenue

Expansionary fiscal policy

taxes decrease, government spending increase

Contractionary Fiscal policy

taxes increase, government spending decrease