MACROECONOMICS

A. Macroeconomics looks at the economy as a whole. •-'•-'-• • ->

B. The levels of economic activity are measured with a number of benchmarks,
including:
1. Nominal Gross Domestic Product (GDP)—The price of all goods and services
produced by a domestic economy for a year at current market prices.
2. Real GDP—The price of all goods and services produced by an economy at
price level adjusted prices.
3. Potential GDP—The maximum amount of production that could take place
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in an economy without putting pressure on the general level of prices. >-
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4. Net Domestic Product (NDP)—GDP minus depreciation.
5. Gross National Product (GNP)—The price of all goods and services produced by
labor and property supplied by the nation's residents,
6. Unemployment rate—The percent of the total of labor force that is
unemployed at a given time. It consists of ^
a. Frictional unemployment—The unemployment that occurs because
individuals are
forced or voluntarily change jobs. b. Structural unemployment—The
unemployment that occurs due to changes in demand
for products or services, or technological advances that cause changes in
needed
skills, c. Cyclical unemployment—The unemployment caused by economic
conditions.
7. Inflation—The rate of increase in the price level of goods and services,
usually measured on an annual basis.
8. Deflation—A decrease in price level.
9. Measures of price index (inflation) include:
a. Consumer price index—Measures price changes in products bought by
urban
consumers.
b. Producer price index—Measures price changes at the wholesale level. c.
The GDP deflator—Measures price changes for net exports, investments,
govern-'", ment expenditures and consumer spending. It is the most
comprehensive measure of
price level.
10. Personal disposable income—The amount of income that individuals
receive and have available to purchase goods and services.
11. Interest rates
a. Real interest rates—Interest rate in terms of goods
b. Nominal interest rate—Interest rate in terms of the nation's currency
12. Government budget surplus (deficit)—The excess (deficit) of government
taxes in relation to government transfer payments and purchases
C. An aggregate demand curve depicts the demand of consumers, businesses,
government, and foreign purchasers. It looks much like the demand curve for an
individual product. The aggregate supply schedule presents the relationship between
goods and services supplied and the price level. Equilibrium GDP occurs when the
output level of the economy creates just enough spending to purchase the entire
output.
16 - Macroeconomics