Economics: Macroeconomics Essentials

What are the four primary components of Gross Domestic Product (GDP) using the expenditure approach?

The four components are Consumption (C), Investment (I), Government Spending (G), and Net Exports (X - M).

What is the primary difference between Nominal GDP and Real GDP?

Nominal GDP is measured in current prices, while Real GDP is adjusted for inflation using constant prices from a base year.

Define the Consumer Price Index (CPI) and its primary purpose.

The CPI is a measure that examines the weighted average of prices of a basket of consumer goods and services; it is used to measure inflation.

What is 'frictional unemployment'?

Frictional unemployment is temporary unemployment that occurs when workers are between jobs or searching for new ones.

How is 'structural unemployment' different from 'cyclical unemployment'?

Structural unemployment results from a mismatch between worker skills and job requirements, whereas cyclical unemployment is caused by downturns in the business cycle.

What constitutes the 'Natural Rate of Unemployment'?

The Natural Rate of Unemployment is the sum of frictional and structural unemployment, representing the level of unemployment when the economy is at full potential.

What are the two primary tools of Fiscal Policy used by the government to influence the economy?

The two primary tools are government spending and taxation.

Explain the 'Multiplier Effect' in the context of fiscal policy.

The Multiplier Effect is the phenomenon where an initial change in spending leads to a larger overall increase in national income/GDP.

What is the 'Dual Mandate' of the Federal Reserve?

The Federal Reserve's dual mandate is to promote maximum sustainable employment and maintain stable prices (low inflation).

How does the Federal Reserve use Open Market Operations (OMO) to implement expansionary monetary policy?

The Fed buys government bonds from banks, which increases the money supply and lowers interest rates to stimulate economic activity.