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Exam 3 Notes (scored 92%)

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ECON 2030
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Economics Test 3 NotesI SUBSTANCEMacroeconomics aggregate total sum of wholeThree main topics economic growth unemployment and inflationAEconomic Growth1Definition producing more in a period than in the previous oneoOutput per worker per hour is much better now than it used to beoReal GDPthe market value of final goods and services produced in an economy stated in the prices of a given year oIf the economy is growing total output and income are increasingoSecular growth trend the rate at which the actual output grows in any one year fluctuates oPer capita real output real GDP divided by the total populationoEconomic growth per capita allows everyone on avg to have moreoGrowth allows Gov to avoid hard distributional question on who should get the existing output bc there is more to go aroundoGrowing economy creates jobsoCOSTSPollution resource exhaustion and destruction of natural habitat2Major IssueFluctuations over timea Long Run Economic GrowthChanges in Productivity what drives growthFocuses on incentives for supplySometimes calledsupply side economics Policies affect production or supplyEX promote work capital accumulation technological changeb Short RunBusiness CycleFocuses on demandSometimes calleddemand side economicsFocuses on ways to increase or decrease aggregate expendituresPolices to get consumers and businesses to increase spendingBusiness cycleThe upward or downward movement of economic activity or real GDP that occurs around the growth trendKeynesians macroeconomists who favor activist gov policyFluctuations can be controlledClassicals macroeconomist who favor laissezfaire or nonactivist policiesCannot control fluctuations due to individuals anticipating gov rxn thereby undermining themc Business Cycle Recession Depression ExpansionRecession output is retractingDecline in real output that persist for more than two consecutive quarter of a yearDepression SEVERE recessionExpansion output is positive goodAn upturn that lasts at least two consecutive quarters of a yeard Example Productivity procyclical moving with the business cycleexpansion goes up recessions goes downgrowth in business moves in procylcical ex grad school applications are counter cyclical as well as the employment rate opposite the business cycleBUnemployment The Basics1True problem of unemploymentno single true measure of the true problemparttime wasted resource wasted hours that they could work but couldnt find a full time jobunemployment rate doesnt take that into account2Relationship with the business cyclea Countercyclical with a lagUnemployment rates move opposite business cycleunemployment rates do not immediately start decreasing there is a lag it will continue to get higher at a slower rate than it will start decreasingboth business cycles and growth are directly related to unemployment in the US economygrowthunemployment falling recessionunemployment rising with a lag3Unemployment Rate the percentage of people in the economy who are willing and able to work but who are not workingDetermined by dividing the number of people who are unemployed by the number of people in the labor force multiplied by 100Gives a good indication of how much labor is available to increase production and thus provides a good idea of how fast the economy could growLabor force people in an economy who are willing and able to work
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