Macro Unit 2:

Unit 2 Organizing Principles

The study of Macroeconomics can be divided into two parts: measuring the economy the overall economy in an effort to achieve three goals: more economic growth, limited unemployment, and stable prices.

The most important measurement in macroeconomics is gross domestic product (GDP). GDP is the value of all final goods and services produced within a country in a given year. You need to know the two ways to calculate GDP (the income approach and the expenditures approach), what is included in GDP, what is not included in GDP, and the difference between nominal and real GDP. Make sure you feel comfortable with this concept since you will use it in every other unit.

Next you will learn about how the government measures unemployment and the different types of unemployment. The unemployment rate is the number of people in the labor force that are actively looking for a job. Notice that this definition means that some people might not be considered unemployed even though they are jobless. Examples of this are part-time workers and people who have given up looking for work. Make sure that you know the definition of full employment and understand why the goal is not to achieve 0% unemployment.

The last thing you will learn is how economists measure inflation. This section is a little more technical and requires you to use the equations for CPI and the GDP deflator. Both are index numbers that show how prices change since a specific base year. The main difference is that the CPI measures the prices of consumer goods and the GDP deflator measures prices of all goods. Make sure you learn who is helped or hurt by unanticipated inflation and the quantity theory of money.

This is a super important unit since it covers all the foundational concepts that you will use for Macroeconomics. Good luck!