Lynch Economics Unit 3

Study online at https://quizlet.com/_5hvao

MACROECONOMICS the study of a groups, or even a whole countries choices.
Boom The Economy is Good
Recession The Economy is Bad
Gross Domestic Product is basically the SIZE of your economy.
GDP
GDP measures the dollar value of all final goods, services, and
structures made in a country.
Quarterly so that you can see if it is growing or shrinking over 3
How often GDP is Measured
months and make plans for the future
Expansion is When the GDP is Growing (the economy is good)
Contraction is when GDP is Shrinking (the economy is bad()
Normal swings in GDP from
Good/Boom AKA Expansion/Growing
Business Cycle
to
Bad/Recession AKA Contractions/Shrinking
Peak Highest Point in a Business Cycle's Expansion
Trough Lowest Point in a Business Cycle's Contraction
The part of GDP Expanding BACK to the a previous peak. You are
Recovery
recovering all the lost value of the recession
The part of GDP Expanding BEYOND a previous peak. You are
Prosperity
are having ECONOMIC GROWTH to new highs!
1) Used Products (already counted)
2) Stores buying stuff to sell (count once)
3) Illegal products (no way to measure)
4) Stuff made in foreign countries (where made
GDP Doesnt Include matters)
5) Under the table sales (no way to measure)
6) Underground/Black Market (no way to measure)
7) Non-market Transactions (welfare checks you're not making
anything in exchange for the money)
is the Percentage of people willing and able to work, and yet can't
find a job
Unemployment Rate
During a Boom this is Low
During a Recession this is HIGH
This is NOT the same as not having a job.
Being Unemployed
You have to be in the LABOR force & be willing and able to work
and yet not find a job to be unemployed
Labor Force is the group of people willing and able to work
is group the group of people NOT willing (say retired, lotto winner,
stay at home mom or dad) or NOT able (in coma, disabled, in jail)
Not in Labor Force to work

THEY ARE NOT UNEMPLOYED

Underemployed
Spiked in Unemployement
Frictional unemployment
When you are doing a job for which you are overqualified. Exam-
ple: college educated teacher waiting tables while looking for a
teaching job
This is like the question what came first the chicken or the egg.
Unemployment Rate Spikes up during a Recession
High Unemployment can cause a Recession
Least Serious . It's temporary between jobs when someone quits.
You always have people quitting so always have this.

1/4
Lynch Economics Unit 3
Study online at https://quizlet.com/_5hvao
Seasonal unemployment
Cyclical unemployment
Technological unemployment
Structural unemployment
Inflation
Calculating Inflation
Consumer Price Index
Inflation Rate
Market Basket
CPI Up
CPI Down
Dangers of Too Fast Expanding
Dangers of Too Slow Expanding
Monetary Policy
the FED
Chairman of the FED
Purpose of the Fed
Problem the Fed Faces
Easy Monetary Policy
Tight Monetary Policy
Easy Monetray Policy Tools
2/4
when jobs are temporary lost because of weather/time of year.
Like you don't build roads in Michigan in Winter.
job lost because the country is already in a recession. People don't
buy as many big things like Cars/House/Refrigerator so jobs are
lost there.
when a job is permanently gone because a machine now does it.
ATMs = less bank tellers. Computers replace people
fundamental change in people buying or in society so some jobs
are gone.
means dollars (money) have less purchasing power (can buy less)
a little inflation is normal, but high inflation is very bad and can
cause a recession
how much the CPI (Consumer price index) changes.
government determined market basket of the the average goods
the average american buys
% increase in Inflation(Prices)
The Inflation Rate is "Overall" of "Everything" but it can vary by
product. Since it's an average obviously some prices go up faster
(like College Costs and Health Care) and some lower
Basically all the common goods and services people buy like
groceries, gas, soap, etc
= Inflation
= Deflation (rare when prices go down)
While expansion is generally good, when it goes too fast this can
cause inflation
which can thing cause the economy to go back downhill toward a
recession
While any expansion is generally better than non. when the econ-
omy starts to slow down
(get close to a peak) unemployement starts going up. This can
then cause the economy to go back downhill toward a recession
Deliberate Control of the money supply by the Federal Reserve
AKA the Federal Reserve, the central bank of the united states
in 2012: Ben Bernake
to prevent a recession
to lower unemployment
to lower/control inflation
The Fed's Purposes can .conctradict each other. Anything the
Fed does to lower inflation (reduce the money supply) makes
unemployment worse & vice-versa
When the Fed Deliberately tries to increase the Money Supply
(To reduce unemployement, although makes inflation a danger)
When the Fed Deliberately tries to Decrease the Money Supply
(To reduce inflation although can make unemployement go up)
1) Tool: Lower Interest Rates
2) Tool: Lower Reserve Requirement
3) Tool: Buy back Gov't Bonds
all of these pump cash into the economy by making it easier to
borrow or cashing in bonds
Lynch Economics Unit 3
Study online at https://quizlet.com/_5hvao
1) Tool: Raise Interest Rates
2) Tool: Raise Reserve Requirement
3) Tool: Sell Gov't Bonds
Tight Monetary Policy Tools
all of these takecash out of the economy by making it harder to
borrow or giving people bonds that you can't spend instead of raw
cash
Necessary for any trade. I want what you have & you want what I
have so we make a volunatary exchange.
Double Coincidence of Wants
Hard to find in a barter economy
When objects/services are traded for other objects/services. Hard
Barter Economy
to do/value has a lot of flaws
Money Economy When objects/services are traded for money.
(one of money's three properties)
Medium of Exchange
Money is spendible anywhere
(one of money's three properties)
Measures Value
Money's value is so well known you can measure the value of
everythign else in terms of money
(one of money's three properties)
Stores Value
Money keeps most of its value (Except inflation)
What is funny in a way is that money's value is really in your
head called Fiat money. You have faith that money will be worth
Fiat Money
something in future so you act like its valuable even if it's just a
piece of cloth/paper
In some of primitive societies like the Aztecs, is basically an
object you could spend like money to barter for more things but
Commodity Money
also could use. For example: Arrowheads A bed might be 50
Arrowheads and a Cow 30 Arrowheads.
gives Congress power to protect $ (print money responsibly & to
Constitutions role on money
punish counterfiters
1) portable (can carry),
2) duable (lasts)
Characteristics of US Money
3) limited supply (or it wouldn't be valuable)
4) divisible ($10 = ten $1s)
Bought not to control the company but to invest hoping for return
(Money to grow)
Stocks as an Investment
Over long periods of time, the whole economy tends to grow = so
does the stock market. Making stocks a good investment OVER
LONG PERIODS OF TIME
Stocks can go down as well as up.
You must always balance the RISK
Judging Stocks
vs
the return
Spreading your money around in a variety of stocks to spread out
Diversify
your risk (in case one company does badly)
Many stocks are tracked together. Two popular benchmarks on the
news of how stocks are doing are:
popular stock indexes
1) Standard and Poor's 500
2) Dow Jones Industrial Average
State/Local Gov't Bonds that tax money to pay off interest on the
municipal bond
bond

3/4
Lynch Economics Unit 3
Study online at https://quizlet.com/_5hvao
Governemnt Savings Bond Federal Govt Bond uses tax money to pay interest
The riskiest type of investment.

Junk Bond This is investing money in companies that people are so afraid are
going to go "bad" and not pay off the bond that they are considered
Junk
AKA CDs

Bank Acct that you agree not to touch your money for a certain
Certificate of Deposit
length of time (without a penalty fee) in exchange you get more
interest than a normal savings account. ((the longer you agree the
more bonus interest))
A professional buys a group of stocks. You buy into the whole
Mutual Fund
group. Instead of buying 1 stock at a time
Some companies pay you money after you retire. This is getting
Pension
rarer and rarer in society
A tax differed investment and savings plan that is a personal
401k pension fund for workers. ((money comes out of your paycheck
before taxes))
stands for Federal Deposit Insurence Corporation.

Safest investment (lowest return though) because the Gov't in-

FDIC
surences your money in case the bank goes bad.

Protects up to $250,000
Keep in mind life insurance pays when you DIE and pays to your
survivors (friend/family/you pick)
Life Insurence
Life Insurance Companies are ones that insures you and pays to
your survivors after you die.

4/4