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Macroeconomics<br />Semester 2 <br />

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C = all household consumption on durables, non-durables and services<br />I = firm’s replacement investment(spending on capital to maintain productivity) or induced investment to increase production<br />G = all government spending <br />X-M = spending by foreigners on exports less domestic spending on imports <br />

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Business Cycle<br />Peak<br />Trough<br />Expansion<br />Peak<br />Real GDP<br />Trough<br />Potential GDP<br />

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Recession <br />A recession is when the economy experiences two consecutive quarters of falling GDP.<br />

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Government Spending + Taxation<br />

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Macroeconomic Goals<br />Growth<br />Income Distribution<br />Employment<br />External Stability<br />Price Stability<br />

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Inflation<br />Is a sustained increase in the general level of prices and a fall in the value of money<br />LRAS<br />AS<br />AD<br />

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Deflation <br />Is a persistent fall in the average level of prices in an economy. <br />

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Demand Pull inflation<br />Is inflation that is caused by increasing AD in an economy<br />That shifts the AD curve to the right<br />AS<br />AD2<br />AD1<br />

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Cost Push inflation<br />Is the inflation that is caused by a increase in<br />The cost of production in the economy<br />That shifts the SRAS curve to the left.<br />AS2<br />AS1<br />AD<br />

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Unemployment<br />Is a situation that exists when people who are willing and able to work cannot get a job<br />

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Full employment<br />Exists when the number of jobs available in an economy is equal to or greater than the number of people actively seeking work<br />

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Underemployment<br />When workers are carrying out jobs for which they are over qualified, that is they are not using their full skills and abilities or when workers are employed part time, even though they are available for full time employment, or when workers in a planned economy are undertaking jobs that would not exist in a free market<br />

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Demand deficient<br />Or<br />Cyclical unemployment<br />Is unemployment that exists when there is insufficient AD in the economy and real wages<br />Do not fall to compensate for this<br />

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Direct taxation<br />Is taxation imposed on people’s income or wealth, and on firms profit.<br />

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Indirect Taxation<br />Is tax on expenditure. IT is added to the selling price of a good or service<br />