Macroeconomics at Fachhochschule Krems

Flashcards and summaries for Macroeconomics at the Fachhochschule Krems

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Study with flashcards and summaries for the course Macroeconomics at the Fachhochschule Krems

Exemplary flashcards for Macroeconomics at the Fachhochschule Krems on StudySmarter:

Macro in politics

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Macro in international context

Exemplary flashcards for Macroeconomics at the Fachhochschule Krems on StudySmarter:

Macro in science

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Exemplary flashcards for Macroeconomics at the Fachhochschule Krems on StudySmarter:

Problems of CPI 

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Flows vs. Stocks

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short run

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Medium run

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Exemplary flashcards for Macroeconomics at the Fachhochschule Krems on StudySmarter:

Macro in everyday life

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Problems of GDP

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Consumer Price Index (CPI)

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Procedure of determination of CPI

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CPI vs. GDP-Deflator

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Exemplary flashcards for Macroeconomics at the Fachhochschule Krems on StudySmarter:

Macroeconomics

Macro in politics

  • Voters can evaluate the state of the economy 
  • Politicians know the independence between success in the elections and macroeconomic policy 
  • The popularity of politicians rises in an economic boom and decreases in a recession
  • Economic Problems are very relevant in the political discussion and for the competition of the party

Macroeconomics

Macro in international context

  • Small economies are affected by macroeconomic policies of big economies (If US sneezes, smaller economies catch the flu) 
  • Economies can co-operate with each other (free trafe areas like Nafta or economic unions like EU) 
  • Countries import and export goods and services to/from other countries 
    • interdependencies may occur 

Macroeconomics

Macro in science

  • Macroeconomists develop theories to explain phenomena based on different data
  • Micro and Macroeconomists are closely related since macroeconomic development results from the interactions of many individual decisions
  • Observations provide the motivation for developing theories and the data for testing them
  • Scientists help to improve measurements of economic policy

Macroeconomics

Problems of CPI 

  • Substitution bias
  • Launch of new goods
  • Changes in quality

Macroeconomics

Flows vs. Stocks

  • Economist differ two types of variables
    • Flows are measured per unit of time
    • Stocks are measured at a particular point in time
  • Flows and stocks are oftentimes related to each other


Macroeconomics

short run

In the short run, demand determines output when prices are sticky

  • Equilibrium in the goods market and determination of output
  • Equilibrium in financial markets and determination of the interest rate

Macroeconomics

Medium run

In the medium run, prices are flexible -> the equilibrium only depends on
structural factors :


  • Equilibrium in the labor market and derivation of natural rate of unemployment
  • Relation between inflation and unemployment

Macroeconomics

Macro in everyday life

  • Pensioners with fixed income are interested in the future development of cost of living
  • Firms need information about the development of households
    • to estimate the demand for their products
    • to plan their investment decisions
  • Unemployed people hope for better job opportunities in a booming economy

Macroeconomics

Problems of GDP

Allthough GDP is the most common indicator for welfare it does not catch these issues: 

  • Level of health
  • Level of education
  • Inequality
  • Leisure
  • Environment
  • Activities outside of markets (e.g. parenting)


Although GDP is the most common indicator for welfare it does not catch many
important issues:

Macroeconomics

Consumer Price Index (CPI)

  • The Consumer Price Index shows the price change of goods and services
    faced by an “average” consumer
  • It is used to determine inflation

Macroeconomics

Procedure of determination of CPI

1) Specification of basket of goods and services
2) Determination of prices for each good
3) Calculation of the total price of the basket
4) Choice of base year
5) Calculation of the CPI
6) Calculation of inflation rate (change in price index compared to the previous
period)

Macroeconomics

CPI vs. GDP-Deflator

  • Both CPI and GDP-Deflator reveal changes in the price level
  • differences lead to different results:
    • CPI only considers prices of the basket 
    • the GDP-Deflator considers
      all prices of all commodities and services produced in the economy
    • composition of the basket considered by CPI changes every 5 years 
    • goods and services considered by the GDP-Deflator change
      every year

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