Unit 3 MACROECONOMICS THE AGGREGATE ECONOMY

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1 Unit 3 MACROECONOMICS THE AGGREGATE ECONOMY

2 SSEMA1 (cont) Illustrate the means by which economic activity is measured Macroeconomics Economic growth Gross Domestic Product Net exports Current (Nominal) GDP Real GDP GDP per capita Aggregate demand Aggregate supply a. Explain that overall levels of income, employment, and prices are determined by the spending and production decisions of households, businesses, government, and net exports. b. Define Gross Domestic Product (GDP), economic growth, unemployment, Consumer Price Index (CPI), inflation, stagflation, and aggregate supply and aggregate demand. (Cont)

3 SSEMA1 (cont) Illustrate the means by which economic activity is measured Business cycle Contraction Recession Depression Trough Expansion (Recovery) Peak (Boom) Inflation Deflation Stagflation Consumer Price Index Market basket Base year Unemployment rate Labor force Cyclical unemployment Structural unemployment Frictional unemployment Seasonal unemployment c. Explain how economic growth, inflation, and unemployment are calculated. d. Identify structural, cyclical, and frictional unemployment. e. Define the stages of the business cycle, include peak, contraction, trough, recovery, expansion, as well as recession and depression. f. f. Describe the difference between the national debt and government deficits.

4 SSEMA2 Explain the role and functions of the Federal Reserve System. Federal Reserve System (Fed) Monetary policy Federal Open Market Committee (FOMC) Board of Governors District or Federal Reserve Banks Member Banks Reserve requirement Prime rate Discount rate Money Supply Easy-money policy (loose) Tight-money policy Open market Operations a. Describe the organization of the Federal Reserve System. b. Define monetary policy. c. Describe how the Federal Reserve uses the tools of monetary policy to promote price stability full employment economic growth

5 SSEMA3 Explain the organization and role of business and analyze the four types of market structures in the U.S. economy. Fiscal Policy Fiscal year Budget deficit National debt Budget surplus a. Define fiscal policy. b. Explain the government s taxing and spending decisions - be able to explain the government s taxing and spending decisions used to promote price stability, full employment, and economic growth.

6 1. What are the similarities and differences between Monetary and Fiscal Policy?

7 1. What are the similarities and differences between Monetary and Fiscal Policy? Both policies seek to promote price stability, full employment, and economic growth. Monetary Policy is carried out by the Federal Reserve. Fiscal Policy is proposed by the President / passed by Congress

8 1. What are the similarities and differences between Monetary and Fiscal Policy? Cyclical Structural Frictional

9 1. What are the similarities and differences between Monetary and Fiscal Policy? Deficits occur in the government s budget when the tax revenue for a given fiscal year is less than the amount the government spends during that year. The national debt is the accumulation of annual deficits over the years plus any interest accrued on the money borrowed.

10 1. What are the similarities and differences between Monetary and Fiscal Policy? The seven member of the Board of Governors of the Fed (Chairman, Vice Chair, 5 Directors) and five district bank presidents. The New York Federal Reserve Bank President is always a voting member; the other presidents serve on a rotation basis.

11 1. What are the similarities and differences between Monetary and Fiscal Policy? The field of economics that studies the behavior of the aggregate economy. Macroeconomics examines economy-wide phenomena such as changes in unemployment, national income, rate of growth, gross domestic product, inflation and price levels.

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