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Basic macroeconomic concepts [edit edit]] Macroeconomics encompasses a variety of concepts and variables, but there are three central topics for macroeconomic research. [3] Macroeconomic theories usually relate the phenomena of output, unemployment, and inflation. O utside of macroeconomic theory, these topics are also important to all economic agents including workers, consumers, and producers.
edit]] Output and income[edit National output output is is the lowest amount of everything a country produces in a given time period.
verything that is produced and sold generates income. !herefore, output and income are usua
considered e"uivalent and the two terms are often used interchangeably. Output can be measur as total income, or, it can be viewed from the production side and measured as the total value of final goods and goods and services or the sum of all value added in added in the economy. economy.[#] Macroeconomic output is usually measured by $ross %omestic &roduct '$%&( &roduct '$%&( or one of the other national accounts. accounts. conomists interested in long)run increases in output study economic
growth. *dvances in technology, accumulation accumulation of machinery and other capital capital,, and better educa and human capital all capital all lead to increased economic output over time. +owever, output does not always increase consistently consistently.. usiness cycles can cause short)term drops in output
called recessions recessions.. conomists look for macroeconomic policies that policies that prevent economies from slip into recessions and that lead to faster long)term growth.
-nemployment !he amount of unemployment in an economy is measured by the unemployment rate, the
Master your semester with Scribd percentage of workers without obs in the labor force. force. !he labor force only includes workers acti Read Free Foron 30this Days Sign up to vote title looking for obs. &eople who are retired, pursuing education, or discouraged from seekingwork & The New York Times Useful Not useful lack of ob prospects are e/cluded from the labor force. Special offer for students: Only $4.99/month.
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-nemployment can be generally broken down into several types that are related to different cau
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0onsistent with classical unemployment, frictional unemployment occurs when appropria
ob vacancies e/ist for a worker, worker, but but the length of time needed to search for and find the ob leads to a period of unemployment. [1] •
2tructural unemployment covers unemployment covers a variety of possible causes of unemployment including mismatch between workers skills and the skills re"uired for open obs. [4] 5arge amounts of
structural unemployment can occur when an economy is transitioning industries and worker
find their previous set of skills are no longer in demand. d emand. 2tructural unemployment is similar t
frictional unemployment since both reflect the problem of matching workers with ob vacanci but structural unemployment covers the time needed to ac"uire new skills not ust the short search process. [6] •
7hile some types of unemployment may occur regardless of the condition of the econom cyclical unemployment occurs when growth stagnates. Okuns lawrepresents lawrepresents the empirical relationship between unemployment and economic growth. [8] !he original version of Okuns states that a 39 increase in output would lead to a :9 decrease in unemployment. [;]
* general general price increase across the entire entire economy is called inflation inflation.. 7hen prices decrease, th
is deflation deflation.. conomists measure these changes in prices with price inde/es. inde/es.
when an economy becomes overheated and grows too "uickly. 2imilarly, 2imilarly, a declining economy c lead to deflation. 0entral bankers, bankers, who control a countrys money supply, try to avoid changes in price level by
Master your semester with Scribd using monetary policy. =aising policy. interest rates or reducing the supply of money in an economy Read Free Foron 30this Days Sign up to vote title reduce inflation.
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!he *%)*2 !he *%)*2 model has model has become the standard te/tbook model for e/plaining the macroeconomy. !his model shows the price level and level of real output given the e"uilibrium in aggregate
[::]
demand and demand and aggregate supply. supply. !he aggregate demand curves downward slope means that mo output is demanded at lower price levels.[:B] !he downward slope is the result of three effectsC the &igou or real balance effect, effect , which states that as real prices fall, real wealth increases, so
consumers demand more goodsD the Eeynes or interest rate effect, effect , which states that as prices f
the demand for money declines causing i nterest rates to decline and borrowing for investment a
consumption to increaseD and the net e/port effect, which states that as prices rise, domestic go become comparatively more e/pensive to foreign consumers and thus e/ports decline. [:B]
onta low levels of output and becomes inelastic near the point of potential potential output, output, which corresponds
full employment. employment.[::] 2ince the economy cannot produce beyond more than potential output, any * e/pansion will lead to higher price levels instead of higher output.
$rowth models[edit edit]] !he neoclassical growth model of =obert 2olow has 2olow has become a common te/tbook model for
e/plaining economic growth in the long)run. !he model begins with a production function where function where
national output is the product of two inputsC capital and labor. !he 2olow model assumes that lab and capital are used at constant rates without the fluctuations in unemployment and capital utili>ation commonly seen in business cycles. [:;]
*n increase in output, economic economic growth, can only occur because because of an increase in the capital capital sto
a larger population, or technological advancements that lead to higher productivity ' !otal factor productivity(. productivity (. *n increase in the savings rate leads to a temporary increase as the economy crea Read Free Foron 30 Days Sign up to vote this title more capital, which adds to output. +owever, eventually the depreciation will limit the e/pan Useful rate Not useful
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for an additional e/pansion in capital. 2olows model suggests that economic growth in terms of
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