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Chapter 19 What Macroeconomics is All About.docx

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Economics (Arts)
ECON 209
Mayssun El- Attar Vilalta

ECON 209Jan 1116 Chapter 19 What Macroeconomics is All About Some remarksMost macroeconomic issues are about either long run trends economic growth or short run fluctuations business cycles and government policy is relevant for bothTwo streams of research in macro based explicitly on micro foundations based only implicitly on these micro foundations 191 Key Macroeconomic Variables Output and IncomeNational product is most comprehensive measure of nations overall level of economic activityProduction of output generates incomeEg If a firm produces 100 worth of ice cream that 100 ultimately represents income for firms workers the firms suppliers of material inputs and the firm ownersNational product is by definition equal to national incomeProductOutputIncomeTo measure total output in dollars we add up values of the many different goods produced This gives nominal national incomeWith baseperiod prices we get real national income o Read national income will be denoted by YOne of most commonly used measures of national income is called gross domestic product GDPRead GDP measures quantity of total output produced by nations economy over period of a yearReal GDP fluctuates around a rising trend o Trend shows long run economic growth o Short run fluctuations show business cyclePotential output is what the economy could produce if all resources were employed at their normal levels of utilization o Often called fullemployment outputOutput gap measures difference between potential output and actual output o Output gapYY o Want gap to be as small as possibleWhen YY there is recessionary gapWhen YY there is an inflationary gap
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