MACROECONOMICS

 Analyzes interrelationships among sectors of the economy

 Gross Domestic Product – dollar value of all goods and services produced by a nation in a given year. Gross Domestic Product  GDP=C+I+G+F  C – personal consumption expenditures  I – private domestic investment  G – government purchases and investments  F – next exports

 Used to compare prices from different years  Indicators of the economy – rapid growth will cause inflation Indicators of the economy –  Leading – business activities that tend to rise or fall before a change in economic activity – ex. New business, employment & construction  Coincident – business activities that change at the same time as economic activity –industrial production, industrial sales, & payrolls  Lagging – those activities that change after the initial changes in economic activity ex. – interest rates

 Graph showing the growth and decline of GDP over time  Expansion - Period of economic growth – high employment & business activities  Peak - Highest point of economic activities  Contraction - Period of economic decline – increasing unemployment & weak business activity  Trough - Economy “bottoms out” with bank failures, major reduction in goods & services, high unemployment  Recession – a brief period of economic inactivity -2 consecutive quarters with a decline in GDP  Depression - an extended period of economic inactivity

 Employment –those who have job & are working  Underemployment –those who have a job for which they are over qualified  Unemployment –those who want a job but don’t have one Unemployment  Unemployment rate -% of the labor force unemployed that are actively seeking employment

 Frictional – “between jobs”  Cyclical – caused by the contraction of the business cycle.  Seasonal – annual changes in certain industries  Structural – changes in the economy that makes workers skills obsolete or useless

 Demand-Pull – prices rise due to an increase in demand  Cost-Push – prices rise because of an increase in production costs  Stagflation – high inflation & high unemployment at the same time

 Spends  Invests  Employs  Settles disputes – National Labor Relations Board  Regulates businesses to preserve competition  Protects the consumer

 Taxes and Spending  Types of taxes – Source of Revenue  Progressive – income taxes  Recessive – sales tax  Proportional – takes in the same % of a person’s income  Expenditures  Deficit – spend more than is taken in  National debt – the amount that accumulates over time due to deficits  Crowding out effect – as the government borrows to cover its deficit, it reduces the amount that private individuals could borrow

 Things used in exchange for goods and services, a store of value and a standard of value.  Barter – trading of goods for goods  Forms of money Forms of money  Currency – paper and coins  Demand deposits – checking accounts  Time deposits – savings accounts  Near money – credit cards  Legal tender – things that have to be accepted by law for goods and services

 Controlling the money supply Controlling the money supply  Ex. - $10,000 deposit with a 10% required reserve will end with $10,ooo in reserves and $90,000 in loans  Federal Reserve System  12 regional banks created by the Federal Reserve Act of 1913  7 member board appointed by the President and confirmed by the Senate to 14 year terms  Chairman is chosen by the same method  Decisions are not subject to government approval

 Reserve Requirement -% banks must keep in reserve and not loaned out  Discount rate – interest rate banks must pay to borrow money from the FED  Buying and Selling of Government bonds  Too rapid growth causes inflation  Slow growth causes unemployment

 Easy money policy – promotes expansion of the money supply  Lower the reserve requirement  Reduce the discount rate  FED buys government bonds  Tight money policy – restricts the growth of the money supply  Raise the reserve requirement  Raise the discount rate  FED sells government bonds