Macroeconomics
What are leading economic indicators?
A central bank conducts monetary policy, acts as lender of last resort, supervises banks, manages foreign reserves, and issues currency .
Leading indicators are statistics that tend to change before the overall economy changes , such as stock market returns, building permits, consumer confidence, and new orders for manufactured goods.
TFP measures the portion of output growth not explained by the growth of inputs (labor and capital). It reflects technology, efficiency, and innovation.
The Laffer Curve illustrates the relationship between tax rates and tax revenue , suggesting that beyond a certain rate, higher taxes reduce revenue because they discourage economic activity.
Macroeconomics
What is the long-run aggregate supply (LRAS) curve?
The LRAS curve is vertical at the potential (full-employment) output level , indicating that in the long run, output is determined by resources and technology, not the price level.
The simple Keynesian spending multiplier is 1 / (1 − MPC) , where MPC is the marginal propensity to consume. For example, if MPC = 0.8, the multiplier is 5.
Aggregate demand is the total quantity of goods and services demanded across all levels of an economy at a given overall price level : AD = C + I + G + (X − M).
A central bank conducts monetary policy, acts as lender of last resort, supervises banks, manages foreign reserves, and issues currency .
Macroeconomics
What is Okun's Law?
AD shifts due to changes in consumer spending, investment, government spending, net exports, or money supply . For example, a tax cut shifts AD rightward.
Potential GDP is the maximum sustainable output an economy can produce when all resources (labor, capital, technology) are fully and efficiently employed without generating excessive inflation.
The simple Keynesian spending multiplier is 1 / (1 − MPC) , where MPC is the marginal propensity to consume. For example, if MPC = 0.8, the multiplier is 5.
Okun's Law states that for every 1% increase in unemployment above the natural rate , real GDP falls approximately 2% below potential GDP (the exact ratio varies by economy).
Macroeconomics
What is the Taylor Rule?
The Taylor Rule is a formula suggesting how central banks should set interest rates based on deviations of inflation from target and GDP from potential: i = r* + π + 0.5(π − π*) + 0.5(y − y*) .
Endogenous growth theory argues that economic growth is driven by internal factors such as human capital, innovation, and knowledge, rather than exogenous technological progress as in the Solow model.
The SRAS curve is upward sloping , showing that in the short run, higher price levels lead to greater output because wages and input costs are sticky.
SRAS shifts due to changes in input prices (wages, oil), productivity, technology, or supply shocks . For example, a rise in oil prices shifts SRAS leftward.
Macroeconomics
What is a depression?
The SRAS curve is upward sloping , showing that in the short run, higher price levels lead to greater output because wages and input costs are sticky.
The Phillips Curve illustrates an inverse short-run relationship between inflation and unemployment : lower unemployment tends to coincide with higher inflation, and vice versa.
A depression is a severe and prolonged recession characterized by a substantial decline in GDP (often >10%), extremely high unemployment, and deflation.
SRAS shifts due to changes in input prices (wages, oil), productivity, technology, or supply shocks . For example, a rise in oil prices shifts SRAS leftward.