Macro Economics Chapter 1

macroeconomics

the study of problems that affect the economy as a whole (lack of growth, unemployment, recessions, and inflation) and what to do about them.

classical economists

believe business cycles are temporary glitches, and generally favor laissez-faire, or nonactivist politics

keynesian economists

believe that business cycles reflect underlying problems that can be addressed with activist government policies

potential output

the highest amount of output an economy can sustainably produce and sell using existing production processes and resources

per capita output

output divided by the total population

recession

a decline in real output that persists for more than two consecutive quarters of a year

expansion

an upturn that lasts at least two consecutive quarters a year

structural stagnation

a cyclical downturn that we do not expect to end any time soon with major changes in the structure of the economy

unemployment rate

the percentage of people in the economy who are willing and able to work but who cannot find jobs

cyclical unemployment

unemployment that results from fluctuations in the economic activity

structural unemployment

unemployment caused by the institutional structure of an economy or by economic restructuring making some skills obsolete

target rate of employment

the lowest sustainable rate of unemployment that policy makers believe is achievable under existing conditions

full employment

an economic climate where nearly everyone who wants a job has one

frictional unemployment

unemployment caused by people entering the job market and people quitting a job just long enough to look for and find another job