Title: Macroeconomics — LearnCoachAssist

Q: What is GDP?
A: GDP (Gross Domestic Product) is the total monetary value of all final goods and services produced within a country's borders in a specific time period.

Q: What are the three approaches to measuring GDP?
A: The three approaches are the expenditure approach (C + I + G + NX), the income approach (sum of all incomes earned), and the production/output approach (sum of value added at each stage).

Q: What is the GDP expenditure formula?
A: GDP = C + I + G + (X − M), where C = consumption, I = investment, G = government spending, X = exports, M = imports.

Q: What is the difference between nominal GDP and real GDP?
A: Nominal GDP is measured at current market prices, while real GDP is adjusted for inflation using a base year's price level, reflecting true output changes.

Q: What is the GDP deflator?
A: The GDP deflator is a price index calculated as (Nominal GDP / Real GDP) × 100. It measures the overall level of prices for all goods and services included in GDP.

Q: What is GDP per capita?
A: GDP per capita is GDP divided by total population. It provides a rough measure of average economic output per person and is used to compare living standards across countries.

Q: What is GNP and how does it differ from GDP?
A: GNP (Gross National Product) measures output produced by a country's residents regardless of location, while GDP measures output within a country's borders regardless of who produces it.

Q: What is inflation?
A: Inflation is a sustained increase in the general price level of goods and services in an economy over a period of time, reducing the purchasing power of money.

Q: What is the Consumer Price Index (CPI)?
A: The CPI measures the average change over time in the prices paid by urban consumers for a fixed basket of consumer goods and services.

Q: What is the difference between CPI and the GDP deflator?
A: CPI measures prices of a fixed basket of consumer goods only, while the GDP deflator covers all domestically produced goods and services and updates its basket automatically.

Q: What is demand-pull inflation?
A: Demand-pull inflation occurs when aggregate demand exceeds aggregate supply, pulling prices upward. It is often described as "too much money chasing too few goods."

Q: What is cost-push inflation?
A: Cost-push inflation occurs when rising production costs (e.g., wages, raw materials) cause producers to raise prices, pushing the overall price level up even without excess demand.

Q: What is hyperinflation?
A: Hyperinflation is extremely rapid and out-of-control inflation, typically exceeding 50% per month, which erodes the real value of currency and destabilizes the economy.

Q: What is deflation?
A: Deflation is a sustained decrease in the general price level. It can increase real debt burdens and lead to reduced consumer spending as people delay purchases expecting lower prices.

Q: What is stagflation?
A: Stagflation is the combination of stagnant economic growth, high unemployment, and high inflation occurring simultaneously — a particularly difficult situation for policymakers.

Q: What is the unemployment rate?
A: The unemployment rate is the percentage of the labor force that is jobless and actively seeking employment: (Number Unemployed / Labor Force) × 100.

Q: What are the three main types of unemployment?
A: The three main types are frictional (transitional/search), structural (skills mismatch or industry shifts), and cyclical (caused by economic downturns).

Q: What is the natural rate of unemployment?
A: The natural rate of unemployment is the rate that prevails when the economy is at full employment, consisting of frictional and structural unemployment but zero cyclical unemployment.

Q: What is frictional unemployment?
A: Frictional unemployment is short-term unemployment arising from the process of matching workers with jobs, such as new graduates searching for work or workers changing careers.

Q: What is structural unemployment?
A: Structural unemployment results from a mismatch between workers' skills and job requirements, often caused by technological change, globalization, or shifts in industry composition.

Q: What is cyclical unemployment?
A: Cyclical unemployment is unemployment caused by downturns in the business cycle. It rises during recessions and falls during expansions.

Q: What is Okun's Law?
A: 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).

Q: What is the Phillips Curve?
A: The Phillips Curve illustrates an inverse short-run relationship between inflation and unemployment: lower unemployment tends to coincide with higher inflation, and vice versa.

Q: What is fiscal policy?
A: Fiscal policy refers to government use of taxation and spending to influence the economy. It is set by legislatures and executive branches of government.

Q: What is expansionary fiscal policy?
A: Expansionary fiscal policy involves increasing government spending and/or cutting taxes to stimulate aggregate demand, typically used during recessions.

Q: What is contractionary fiscal policy?
A: Contractionary fiscal policy involves decreasing government spending and/or raising taxes to reduce aggregate demand, typically used to combat inflation.

Q: What is the government budget deficit?
A: A budget deficit occurs when government expenditures exceed government revenues (primarily tax receipts) in a given fiscal year.

Q: What is the national debt?
A: The national debt is the accumulated total of all past government budget deficits minus surpluses. It represents the total amount the government owes to creditors.

Q: What is the crowding-out effect?
A: The crowding-out effect occurs when increased government borrowing raises interest rates, which reduces private investment spending, partially offsetting the fiscal stimulus.

Q: What are automatic stabilizers?
A: Automatic stabilizers are fiscal mechanisms that automatically adjust with economic conditions without new legislation, such as progressive income taxes and unemployment insurance.

Q: What is the fiscal multiplier?
A: The fiscal multiplier measures the ratio of a change in GDP to the initial change in government spending or taxation that caused it. A multiplier > 1 means GDP changes more than the initial stimulus.

Q: What is the marginal propensity to consume (MPC)?
A: The MPC is the fraction of additional income that is spent on consumption rather than saved. For example, an MPC of 0.8 means 80 cents of each extra dollar is spent.

Q: What is monetary policy?
A: Monetary policy involves actions by a central bank to manage the money supply and interest rates to achieve macroeconomic objectives such as price stability and full employment.

Q: What is expansionary monetary policy?
A: Expansionary monetary policy involves the central bank increasing the money supply and/or lowering interest rates to stimulate economic activity.

Q: What is contractionary monetary policy?
A: Contractionary monetary policy involves the central bank decreasing the money supply and/or raising interest rates to slow down the economy and reduce inflation.

Q: What are open market operations?
A: Open market operations are the buying and selling of government securities by the central bank to control the money supply. Buying injects money; selling withdraws it.

Q: What is the federal funds rate?
A: The federal funds rate is the interest rate at which depository institutions lend reserve balances to each other overnight. It is the primary policy rate targeted by the U.S. Federal Reserve.

Q: What is the discount rate in central banking?
A: The discount rate is the interest rate the central bank charges commercial banks for short-term loans from its discount window. It serves as a ceiling for short-term rates.

Q: What is the reserve requirement?
A: The reserve requirement is the minimum fraction of deposits that banks must hold as reserves rather than lend out. Lowering it increases the money supply; raising it decreases it.

Q: What is quantitative easing (QE)?
A: QE is an unconventional monetary policy where the central bank purchases longer-term securities (e.g., bonds, mortgage-backed securities) to inject liquidity when short-term rates are already near zero.

Q: What is the money multiplier?
A: The money multiplier is 1 / reserve requirement ratio. It shows the maximum amount of money the banking system can create from each dollar of reserves.

Q: What are the functions of a central bank?
A: A central bank conducts monetary policy, acts as lender of last resort, supervises banks, manages foreign reserves, and issues currency.

Q: What is the Federal Reserve System?
A: The Federal Reserve (the Fed) is the central bank of the United States, established in 1913. It consists of the Board of Governors, 12 regional Reserve Banks, and the FOMC.

Q: What is the European Central Bank (ECB)?
A: The ECB is the central bank for the eurozone, responsible for monetary policy across countries using the euro. Its primary mandate is price stability.

Q: What is central bank independence?
A: Central bank independence means the central bank can set monetary policy free from direct political pressure, which helps maintain credibility and keep inflation expectations anchored.

Q: What is the Taylor Rule?
A: 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*).

Q: What is the nominal interest rate?
A: The nominal interest rate is the stated rate of return on a loan or investment before adjusting for inflation.

Q: What is the real interest rate?
A: The real interest rate is the nominal interest rate minus the inflation rate. It reflects the true cost of borrowing and the true yield on savings.

Q: What is the Fisher equation?
A: The Fisher equation states: nominal interest rate ≈ real interest rate + expected inflation (i ≈ r + πᵉ).

Q: What is the liquidity trap?
A: A liquidity trap occurs when interest rates are near zero and monetary policy becomes ineffective because people hoard cash rather than spend or invest, regardless of how much money is injected.

Q: What is the zero lower bound?
A: The zero lower bound (ZLB) refers to the situation where nominal interest rates cannot be reduced below zero (or slightly below), limiting the central bank's ability to stimulate the economy through conventional rate cuts.

Q: What are the four phases of the business cycle?
A: The four phases are expansion (growth), peak (maximum output), contraction/recession (decline), and trough (minimum output before recovery).

Q: What defines a recession?
A: A recession is commonly defined as two consecutive quarters of declining real GDP. The NBER defines it more broadly as a significant decline in economic activity spread across the economy.

Q: What is a depression?
A: A depression is a severe and prolonged recession characterized by a substantial decline in GDP (often >10%), extremely high unemployment, and deflation.

Q: What are leading economic indicators?
A: 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.

Q: What are lagging economic indicators?
A: Lagging indicators are statistics that change after the economy has already shifted, such as the unemployment rate, corporate profits, and the consumer price index.

Q: What is aggregate demand (AD)?
A: 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).

Q: Why does the aggregate demand curve slope downward?
A: The AD curve slopes downward due to the wealth effect (higher prices reduce real wealth), the interest rate effect (higher prices raise interest rates), and the exchange rate effect (higher prices reduce net exports).

Q: What is aggregate supply (AS)?
A: Aggregate supply is the total quantity of goods and services that producers are willing and able to supply at a given overall price level.

Q: What is the short-run aggregate supply (SRAS) curve?
A: 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.

Q: What is the long-run aggregate supply (LRAS) curve?
A: 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.

Q: What causes a shift in aggregate demand?
A: AD shifts due to changes in consumer spending, investment, government spending, net exports, or money supply. For example, a tax cut shifts AD rightward.

Q: What causes a shift in short-run aggregate supply?
A: 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.

Q: What is macroeconomic equilibrium?
A: Macroeconomic equilibrium occurs where the aggregate demand curve intersects the aggregate supply curve, determining the equilibrium price level and real GDP.

Q: What is a demand shock?
A: A demand shock is an unexpected event that suddenly increases or decreases aggregate demand, such as a financial crisis (negative) or a large government stimulus package (positive).

Q: What is a supply shock?
A: A supply shock is an unexpected event that suddenly changes aggregate supply, such as an oil embargo (negative supply shock) or a major technological breakthrough (positive supply shock).

Q: What is comparative advantage?
A: Comparative advantage exists when a country can produce a good at a lower opportunity cost than another country, forming the basis for mutually beneficial trade.

Q: What is absolute advantage?
A: Absolute advantage means a country can produce a good using fewer resources (more efficiently) than another country. It does not by itself determine trade patterns.

Q: What are tariffs?
A: Tariffs are taxes imposed on imported goods. They raise the price of imports, protect domestic industries, generate government revenue, but reduce consumer welfare and trade volume.

Q: What are quotas?
A: Quotas are government-imposed limits on the quantity of a good that can be imported during a specific period. They restrict supply and raise domestic prices.

Q: What is the balance of trade?
A: The balance of trade is the difference between a country's exports and imports of goods and services. A surplus means exports > imports; a deficit means imports > exports.

Q: What is the current account?
A: The current account records a country's trade in goods and services, net income from abroad, and net current transfers. A deficit means the country is a net borrower from the world.

Q: What is the capital account (financial account)?
A: The capital/financial account records cross-border transactions in financial assets, including foreign direct investment, portfolio investment, and reserve assets.

Q: What is the balance of payments?
A: The balance of payments is a comprehensive record of all economic transactions between residents of a country and the rest of the world. The current account and capital/financial account must sum to zero.

Q: What are terms of trade?
A: Terms of trade measure the ratio of export prices to import prices (index of export prices / index of import prices × 100). An improvement means exports buy more imports.

Q: What is a floating exchange rate?
A: A floating exchange rate is determined by supply and demand in the foreign exchange market without direct government intervention.

Q: What is a fixed exchange rate?
A: A fixed (pegged) exchange rate is one where a government or central bank ties the currency's value to another currency or basket of currencies and intervenes to maintain the peg.

Q: What causes a currency to appreciate?
A: A currency appreciates when there is increased demand for it, driven by factors such as higher interest rates, trade surpluses, strong economic growth, or capital inflows.

Q: What causes a currency to depreciate?
A: A currency depreciates when there is decreased demand or increased supply, driven by lower interest rates, trade deficits, inflation, or capital outflows.

Q: What is purchasing power parity (PPP)?
A: PPP is a theory stating that exchange rates should adjust so that identical goods cost the same in different countries when expressed in a common currency.

Q: What is the real exchange rate?
A: The real exchange rate is the nominal exchange rate adjusted for price level differences between countries: Real ER = Nominal ER × (Domestic Price / Foreign Price).

Q: What is the Solow growth model?
A: The Solow model explains long-run economic growth through capital accumulation, labor growth, and technological progress, predicting that economies converge to a steady state.

Q: What is the steady state in the Solow model?
A: The steady state is the long-run equilibrium where capital per worker and output per worker are constant. Investment exactly offsets depreciation and labor force growth.

Q: What is total factor productivity (TFP)?
A: TFP measures the portion of output growth not explained by the growth of inputs (labor and capital). It reflects technology, efficiency, and innovation.

Q: What is the Solow residual?
A: The Solow residual is the unexplained portion of GDP growth after accounting for capital and labor inputs. It is used as a measure of total factor productivity growth.

Q: What is the production function?
A: A production function describes the relationship between inputs (capital, labor) and output. A common form is the Cobb-Douglas: Y = A × K^α × L^1−α.

Q: What are diminishing returns to capital?
A: Diminishing returns to capital means that each additional unit of capital produces a smaller increase in output when other factors are held constant, a key feature of the Solow model.

Q: What is endogenous growth theory?
A: 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.

Q: What is human capital?
A: Human capital refers to the skills, knowledge, education, and health of workers that contribute to their productivity and economic output.

Q: What is the quantity theory of money?
A: The quantity theory of money states MV = PY, where M = money supply, V = velocity of money, P = price level, Y = real output. It implies that changes in money supply proportionally affect prices.

Q: What is the velocity of money?
A: The velocity of money is the average number of times a unit of currency is used to purchase goods and services in a given period: V = PY / M.

Q: What is the liquidity preference theory?
A: Keynes's liquidity preference theory states that the interest rate is determined by the supply and demand for money. People demand money for transactions, precautionary, and speculative motives.

Q: What is the IS-LM model?
A: The IS-LM model shows the interaction between the goods market (IS curve) and the money market (LM curve) to determine equilibrium interest rates and output simultaneously.

Q: What is the IS curve?
A: The IS curve represents combinations of interest rates and output where the goods market is in equilibrium (planned expenditure = output). It slopes downward.

Q: What is the LM curve?
A: The LM curve represents combinations of interest rates and output where the money market is in equilibrium (money demand = money supply). It slopes upward.

Q: What is the Keynesian multiplier formula?
A: 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.

Q: What is the paradox of thrift?
A: The paradox of thrift states that if everyone increases saving simultaneously, total income and output may fall, potentially leaving everyone worse off — an example of the fallacy of composition.

Q: What is the Laffer Curve?
A: 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.

Q: What is the Ricardian equivalence?
A: Ricardian equivalence proposes that consumers anticipate future taxes to pay off government debt, so government borrowing and taxation have equivalent effects on the economy.

Q: What is the output gap?
A: The output gap is the difference between actual GDP and potential GDP. A positive gap indicates an overheating economy; a negative gap indicates underutilization of resources.

Q: What is potential GDP?
A: 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.