Regardless of the nationality of the producer

currently produced

Everything legally sold on the market

The value of intermediate goods is already included in the value of final goods

Including tangible goods and intangible services

Used market price

Household expenditures on goods and services other than buying a new home

The purchase of items used to produce more goods and services in the future. Is the sum of capital equipment, inventory, and building purchases

Government consumption expenditure and total investment

Export-Import

A measure of the price level

Measure of real GDP: Economists want to measure the total quantity of goods and services produced independent of changes in their prices

GDP does not directly measure all the things that make life meaningful, but it does measure our ability to live the many investments that make a meaningful life.

Consumers tend to substitute items that become cheaper

More choices, reducing the cost of maintaining the same level of economic well-being

Stock of equipment and buildings used to produce goods and services

The knowledge and skills workers acquire through education, training and experience

Includes skills acquired in early childhood education, primary school, secondary school, university and vocational training for the adult workforce

Consumption of resources to transfer understanding of technical knowledge to the workforce

Inputs provided by nature that are used in the production of goods and services, both renewable and non-renewable

Are natural resources a limit to growth?

Society's best knowledge of the ways in which goods and services are produced, including both public and private knowledge

Refers to society’s understanding of how the world works

Countries that start poor tend to grow faster than countries that start rich

Capital investment owned and operated by a foreign entity

Financing in foreign currencies and operated by domestic residents

Encourage the inflow of capital into poor countries, obtain funds from advanced countries, issue loans to less developed countries, and provide advice on how to use funds effectively.

Educated workers generate new ideas about how to better produce goods and services, which is the external benefit of education.

An important factor in long-term economic growth is improved health through better nutrition

Policies that lead to faster economic growth improve people's health, which in turn boosts economic growth

A prerequisite for the price system to work is respect for property rights in the economy

One threat to property rights is political instability

Some of the world's poorest countries attempt to achieve economic growth through inward-looking policies

International trading of goods and services promotes economic growth and improves the economic welfare of a country's citizens

means more people consume goods and services

Malthus believed that a growing population would always limit society's ability to feed itself, with the result that humans would be doomed to live in perpetual poverty.

A reduction in the amount of capital allocated causes a reduction in productivity and GDP per capita

bonds

stock

Stock price: is determined by the supply and demand of the stock

dividend

P/E price-to-earnings ratio

Collect deposits from people who want to save and use these deposits to make loans to people who want to borrow

Allows people to write checks against their savings and use debit cards to facilitate the purchase of goods and services

Role: Bridging deposits and loans; creating a medium of exchange

An institution that sells shares to the public and uses the proceeds to purchase a portfolio of stocks and bonds

advantage

index fund

In a closed economy, imports and exports are zero

Y-C-G=I

S=I

S=Y-C=G / S=(Y-T-C) (T-G)

The role of the financial system

The purchase of new capital such as equipment or buildings

A person's income is greater than his consumption - increases national savings

From those who have extra income and want to save and lend, either directly or indirectly

From households and businesses wishing to borrow money to invest

Interest rate on the vertical axis, loanable funds on the horizontal axis

Interest rate below equilibrium - supply of loanable funds is less than demand - shortage of loanable funds - lenders increase the interest rate they charge

High interest rates encourage savings - increase the supply of loanable funds - discourage investment - reduce demand

Represents the amount of money that the borrower will pay for the loan and the amount of money that the lender will receive from savings.

As interest rates rise, the supply of loanable funds increases

Interest rate adjustment is a balance between supply and demand

is the nominal interest rate - the monetary return on saving versus the monetary return on borrowing. Real interest rates more accurately reflect the true return on savings and the true cost of borrowing

Low savings rate partly attributed to tax laws that discourage saving

Savings incentives increase the supply of loanable funds

investment tax relief

The government finances its budget deficit by borrowing in the bond market. The accumulation of past government borrowings is called government debt.

Balanced government budget: government spending is greater than tax revenue

Budget deficit P90

Budget surpluses increase the supply of loanable funds, lower interest rates, and stimulate investment

Refers to the amount of unemployment that exists in the economy under normal circumstances/refers to the unemployment rate when the total supply and total demand are in equilibrium, without the interference of monetary factors, allowing the spontaneous supply and demand forces of the labor market and commodity market to work. "Normal unemployment rate"

Refers to the unemployment rate fluctuating around the natural rate of unemployment year by year. It is related to the short-term rise and fall of economic activity/is unemployment caused by insufficient short-term demand, that is, the deviation of the unemployment rate from the natural rate of unemployment.

Classification

formula

Changes in male and female labor force participation rates

Official unemployment rate is a useful but imperfect measure

In reality, it is difficult to distinguish between the unemployed and those outside the labor force

Entry and exit from the labor market are extremely common

Most unemployment in the economy is caused by a small number of people who have been out of work for a long time

The unemployment rate never falls to zero and always fluctuates around the natural rate of unemployment

frictional unemployment

structural unemployment

The process of workers finding suitable jobs after their hobbies and skills have been established

Workers have different hobbies and skills

Different nature of work

information asymmetry

Frictional unemployment is usually the result of changes in labor demand among different firms

Because the economy is always in flux; some businesses create jobs and some businesses lose jobs

Department transfer

internet

Government-run employment structures publish information about job vacancies

public training program

unemployment insurance

Surplus labor - unemployment

There are other reasons why wages are above equilibrium: unions and efficiency wages

A workers' association that negotiates wages, benefits and working conditions with employers

A cartel (a form of monopoly organization)

The wages of workers who participate are 10%-20% higher than those who do not participate

When wages are higher than the equilibrium level, labor supply increases and labor demand decreases, leading to unemployment.

Unions influence the natural rate of unemployment through their influence on insiders and outsiders

The role of trade unions depends in part on the laws that guide union organizing and collective bargaining

debate

The fault of the union and the enterprise in agreeing on employment conditions

The union organizes workers to withdraw from the enterprise/refers to the behavior of workers collectively stopping work in order to realize certain interest demands or express protest, divided into economic and political strikes

A wage that firms pay above the equilibrium level to increase worker productivity

High wages - nutritious diet - healthier, more productive

How often workers leave depends on the set of incentives they face, including benefits to leave and benefits to stay.

Pay high wages - Attract better workers to apply - Improve the quality of workers

High wages - Desire to keep jobs - Give workers incentives to put in their best effort

Exchange one item or service for another to get what they need. A transaction requires both parties to

What the buyer gives to the seller when purchasing and providing services

A standard used to express prices and record debt

Something used to transform current purchasing power into future purchasing power

Currency is the most liquid asset, but it is far from perfect as a store of value. When prices rise, the value of money decreases

Currency in the form of commodities with intrinsic value eg: gold, cigarettes

Currency that has no intrinsic value and is used as currency determined by government decree

The amount of money circulating in the economy

Paper currency banknotes and coins held by the public

A bank account balance that depositors can withdraw at any time by writing a check

Because a credit card is not a payment method but a deferred payment method; unlike a debit card, a debit card does not allow users to deferred payment for purchases.

Cash in circulation refers to the sum of cash on hand in various units outside the banking system and cash held by residents.

Money supply in a narrow sense, that is, M0, enterprise demand deposits, government agencies, organizations and military deposits, rural deposits, individual credit card deposits

Broad money supply, that is, M1 time deposits (savings deposits of urban and rural residents, deposits with a fixed nature in corporate deposits, trust deposits, other deposits)

Created in 1913, it is governed by the Board of Governors, which has seven governors appointed by the president and confirmed by the Senate to 14-year terms - giving them independence from short-term political pressures in setting monetary policy. The most important of the 7 directors is the chairman - who appoints Federal Reserve officials and presides over board meetings; the presidents of regional banks are selected by the board of directors of each bank, and board members generally come from local banks and business circles.

Regulate banks and ensure the proper functioning of the banking system

Controlling the amount of money available in the economy is called money supply. Decision makers make monetary policy based on money supply decisions.

Open market operations, bank loans, statutory reserves, interest on reserves

The FOMC meets every six weeks to consider changes in monetary policy.

Increase means banks have to hold more reserves - less loanable funds - reserve ratio increases - money multiplier decreases - money supply decreases

A reserve plan is set up - handed over to the central bank in a certain proportion

Is the reciprocal of the reserve ratio = 1/R

How much money banks create depends on the reserve ratio

Banks use financial resources to generate profits for their owners in various ways - making loans, holding reserves, buying stocks and bonds

Federal Reserve Buys and sells U.S. government bonds

Fed makes loans to banks

Discount rate: The interest rate at which the Federal Reserve makes loans to banks

People and Banks

Commercial banks take the discounted bills to the central bank for discounting

Rediscount rate: the interest rate based on which interest is deducted

Interest rate cut - rediscount rate falls - bank loans increase - money supply increases - real business loans increase - economy gets better - rediscount rate rises

Banks and Banks

The Fed determines the amount of funds it wants to lend to banks - identifies qualified banks - and auctions off the funds to be lent - to the highest bidder. i.e. to banks that have acceptable collateral and are willing to pay the highest interest rate

The more money the Fed provides - the bigger the reserves - the bigger the money supply

Fed determines borrowing amount - competitive auction among banks competing for bids

Increase means banks have to hold more reserves - less loanable funds - reserve ratio increases - money multiplier decreases - money supply decreases

When banks hold reserves on deposit with the Fed, the Fed pays banks interest on those deposits

Fractional reserve banking created a large money supply

The Fed cannot control the amount of money households choose to hold in bank deposits. The more money households hold on deposit - the more bank reserves - the more money the banking system creates

The Fed cannot control how much banks choose to lend

Depositors suspected that the bank was bankrupt and rushed to the bank to withdraw their deposits

It is a problem caused by the fractional reserve banking system. Since the bank can only hold part of the loan in the form of reserves, it is impossible to meet the withdrawal requirements of all depositors. Even if the bank is solvent (assets exceed liabilities), it does not have enough of cash.

A run occurs when a bank is forced to close until its loans are repaid or until a lender of last resort (such as the Federal Reserve) provides it with the currency its depositors need.

Substitutes for the rediscount rate

Lenders: have excess reserves; borrowers: need reserves

CPI in the second year - CPI in the first year/CPI in the first year *100%

GDP deflator for the second year - GDP deflator for the first year / GDP deflator for the first year *100%

Money supply growth determines

When the general price level rises, the value of money falls

Money demand reflects the amount of wealth people want to hold in the form of liquidity. The average price level in the economy is the most important variable.

Money supply increases - price level rises - currency value falls

The slope of the money supply curve = the growth rate of the quantity of money; the slope of the price level curve = the inflation rate

In the long run, the price level will adjust to the equilibrium level. Prices are above the equilibrium level, prices fall - supply and demand balance

quantity equation

Increase in money growth rate = increase in inflation rate

Government prints currency - price level rises - currency depreciates

A tax levied on everyone who holds currency

Cut government spending - end of inflation

Government increases money growth - long run - higher inflation and higher nominal interest rates

Nominal interest rates are adjusted for expected inflation

Nominal interest rate = real interest rate inflation rate

Resources wasted when inflation encourages people to reduce their currency holdings

Inflation increases menu costs borne by businesses

Because the market economy relies on relative prices to allocate scarce resources. When inflation distorts relative prices, consumer policies are also distorted, and the market cannot allocate resources to their best uses.

Inflation discourages saving because capital gains are expanded - increasing tax burden

amend tax laws

Increase money supply - inflation - erode the real value of the unit of account

Inflation inhibits the role of financial markets in allocating savings in the economy into different types of investments

Hyperinflation makes debtors richer at the expense of big banks by reducing the real value of their debts

Deflation to the detriment of debtors makes big banks richer by increasing the real value of debt

Inflation encourages lending and benefits debtors; deflation benefits creditors

Deflation reduces nominal interest rates, which causes the cost of holding money to fall. The shoe-leather cost of holding money is minimized as nominal interest rates approach zero, which in turn requires deflation to equal the real interest rate

Small, predictable deflation may be desirable

Deflation often occurs suddenly and often as a result of widespread macroeconomic difficulties. Deflation - falling prices - reduced demand for goods and services in the economy - reduced aggregate demand - falling incomes and increased unemployment.

A period when output decreases and prices increase

Movements in aggregate supply can cause stagflation—recession (reduced output) and inflation (increased prices)

According to the sticky wage theory: the nominal wages at point A are the same as those at point B, and the nominal wages at point C are higher than those at point A; the real wages at point B are lower than those at point A, and the real wages at point AC are the same.

Technological progress increases an economy's ability to produce goods and services. This increase in output is reflected in a rightward shift of the long-run aggregate supply curve.

The Fed increases the money supply and the aggregate demand curve shifts to the right

Money didn't matter in the classical world because changes were nominal and what people really cared about didn't change. Classical view "money is a veil" because nominal variables are the first thing we see since economic variables are usually expressed in monetary units, however, it is the real variables and the economic forces that determine them that are important

Classical macroeconomic theory: changes in the money supply affect nominal variables but not real variables

Real variable: output – the output of goods and services in the economy as measured by real GDP

Nominal variable: price index - the overall price level measured by the CPI or GDP deflator

By focusing on the relationship between these two variables, we depart from the classical assumption of studying real and nominal variables separately

A curve showing the quantities of goods and services that households, businesses, governments, and foreign customers want to buy at each price level.

Reflects the change in national income or equilibrium expenditure level caused by a certain change in the price level

A curve showing the quantity of goods and services that firms choose to produce and sell at each price level.

Completely different from the demand and supply model of the market

Sloping downward to the right - All other things being equal, a decrease in the general price level in the economy increases the quantity of goods and services demanded

Lower price level - increases real value of money - consumers become wealthier - encourages more spending = greater demand for goods and services

Households: low price level - less money needed to make purchases - increased investment - reduced money holdings - lower interest rates - stimulated consumer spending - increased demand for goods and services

Businesses: low interest rates - easy borrowing - increased business investment - increased demand for goods and services

The U.S. price level fell - U.S. interest rates fell - the real value of the U.S. dollar fell in the foreign exchange market - the U.S. dollar depreciated - stimulated U.S. net exports - increased demand for goods and services

At a given price level, events that increase consumer spending (tax cuts, stock market booms) shift the curve to the right; events that reduce consumer spending (taxes, stock market downturns) shift the curve to the left.

At a given price level, events that increase business investment (optimism about the future, a decrease in interest rates due to an increase in the money supply) - shift to the right

Increases in government spending on goods and services (increased spending on defense or highway construction) - shift to the right

When the price level is given - events that increase spending on net exports (speculation that the exchange rate will fall due to foreign economic prosperity) - shift to the right

The price level is not the long-term determinant of real GDP; in the long run, the economy's labor, capital, natural resources, and technology determine the total supply of goods and services, and no matter how the price level changes, the supply is the same

The natural rate of output is the level of production that the economy tends to achieve in the long run. It is sometimes called potential output or full employment output. It represents the amount of goods and services produced by the economy in the long run. Any change in the economy that changes the growth rate of asset output will change the long-term supply curve. move

Increase in number of workers - increase in supply - shift to the right

Increase in capital stock - Increase in productivity - Increase in supply - Right

New mineral discoveries/imports of important natural resources - increased supply - right

Advances in technological knowledge/opening up international trade - right

eg: population and productivity

Short-term aggregate supply slopes upward to the right because nominal wages adjust slowly to economic changes/work is "sticky" in the short term

Economic recession, because the price level falls, real wages are too high, companies hire less people - nominal wages adjust - real wages fall - companies hire more people - long-term equilibrium

The price level is greater than expected: corporate income increases - output increases - supply increases - profits increase - labor costs remain unchanged - more workers are hired

The price level is smaller than expected: profits fall - labor costs remain unchanged - fewer workers are hired - companies reduce supply - over time - labor contracts expire - negotiations - workers may accept lower wages, prices fall - employment and production remain lower than in the long run level

In short, the short-term upward trend is because nominal wages are determined based on expected prices. When the actual price level turns out to be different from expectations, nominal wages do not respond.

The prices of some goods and services also adjust slowly to changes in economic conditions because of menu costs

Low price level - lower production and service price lag - reduced sales - reduced production and employment

eg; if the company can quickly adjust the price, and price stickiness is the only reason for the short-term upward slope, then the price is completely elastic at this time - vertical; the price cannot be fully adjusted - horizontally

Changes in the general price level can temporarily mislead suppliers about what is happening in the individual markets in which they sell their products.

The emphasis is likely to be a temporary problem and over time nominal wages and structures will become less sticky and the illusion about relative prices will be corrected.

labor, capital, natural resources, technology

The price level is expected to fall and shift to the right

The price level falls - the real value of money held by households increases - stimulates consumption - increases the demand for goods and services

Price level falls - reduces money holdings - lends - interest rates fall - stimulates investment - increases demand

the most important

Fall in price level - Fall in interest rates - Increase in foreign investment - Depreciation of currency in the foreign exchange market - Fall in prices of domestic goods - Increase in net export expenditures - Increase in demand for goods and services

Changes in the quantity demanded of goods and services at a given price level shift the aggregate demand curve

Explain an important principle: monetary policy can be described both in terms of money supply and interest rates.

The aggregate demand curve slopes downward to the right

Currency is controlled by the central bank, which changes the money supply through open market operations, reserve ratios, and discount rates.

It is assumed that the central bank directly controls the money supply, that is, the money supply in the economy is fixed at the level set by the central bank, so the money supply does not depend on economic variables, especially interest rates.

Money is the most liquid asset. The liquidity of money explains the demand for money because money can be used to purchase goods and services.

Interest rate is the opportunity cost of holding money. Rising interest rates increase the cost of holding money and reduce the demand for money

Increase in money supply - decrease in interest rates - increase in demand for goods and services at a given price level - shift of the aggregate demand curve to the right

Reason: Money supply is difficult to measure very accurately; money demand fluctuates all the time. Target the federal funds rate and adjust the daily changes in money demand by adjusting the corresponding money supply.

To lower the federal funds rate - buy government bonds - money supply increases - equilibrium interest rate decreases

The additional change in aggregate demand caused when expansionary fiscal policy increases income and thus consumer spending

Investment acceleration number: positive feedback from investment demand. Higher government demand stimulates higher demand for investment products

Expenditure multiplier formula: Multiplier=1/(1-MPC)

A decrease in aggregate demand caused when expansionary fiscal policy causes interest rates to rise, thereby reducing investment spending

Government tax cuts or government purchases increase - stimulate consumer spending - income and profits increase - stimulate consumer spending - multiplier effect

Higher income leads to higher money demand - higher interest rates - reduced investment spending - crowding out effect

Expect tax cuts to be durable - economy strengthens - more spending

Tax cuts expected to be temporary - small increase in spending

When total expenditure is insufficient and unemployment increases, the government expands demand for goods and services, increases purchasing levels, and suppresses recession.

When total expenditure is insufficient and unemployment continues to increase, the government must increase social welfare expenses and increase the level of transfer payments.

Total spending is insufficient and the government cuts taxes when unemployment increases, leaving some disposable income for the public

Automatically adjust tax system

Automatic increases and decreases in fiscal transfer payments

In the short run, aggregate demand rises - output rises - prices rise - inflation rises - unemployment falls

In the short term, an increase in aggregate demand for goods and services causes an increase in output and an increase in the overall price level. More output leads to more employment and lower unemployment

There is no trade-off between inflation and unemployment in the long run. Growth in the money supply determines the inflation rate, and regardless of the inflation rate, the unemployment rate tends to the natural rate of unemployment - vertical

The essence is an expression of the classical idea of ​​monetary neutrality.

Policy changes that reduce the natural rate of unemployment shift the long-run Phillips curve to the left

Unemployment rate = natural unemployment rate - a (actual inflation - expected inflation)

The view that unemployment will eventually return to its normal or natural rate, regardless of the rate of inflation

Increase in cost - decrease in the quantity of goods and services supplied at a given price level - supply curve shifts to the left - decrease in output - rise in price level - stagflation - decrease in employment - increase in unemployment

The Fed reduces the growth rate of the money supply - tightens aggregate demand - businesses produce fewer goods and services - increases unemployment

For a country to reduce inflation, it must endure a period of high unemployment and low output.

Sargent: In fact, in the most extreme cases, the sacrifice rate can be zero

The theory that when people predict the future, they can make full use of all the information they have, including information about government policy

The cost of disinflation depends on how quickly inflation expectations fall

Some economists believe that credible low-inflation commitments can reduce the costs of disinflation by causing rapid adjustments in expectations.