Define the following terms and explain their importance to the study of macroeconomics:

Question

a. aggregation
b. recession
c. gross domestic product
d. final goods and services
e. stabilization policy

Answer 1

a. Aggregation means combining many individual markets into one overall market. Economists use aggregation in studying macroeconomics. It is not usually used in microeconomics. One important issue is whether such a procedure can produce a meaningful number, i.e., can you add together dissimilar categories like apples and oranges.
b. A recession is a period of time during which total production of goods and services in the economy declines. The technical definition of a recession is when real GDP falls for two successive calendar quarters. Recessions are a major problem in macroeconomic analysis that macroeconomists try to cure and prevent.
c. Gross domestic product is the sum of the money value of all final goods and services produced in the domestic economy during a specific time period. GDP is the single most important statistic used to measure overall macroeconomic conditions.
d. A final good or service is one purchased by the ultimate user. Final is used to contrast intermediate goods and services that are bought by another producer or distributor. The GDP includes only final goods and services and excludes intermediate goods and services.
e. Stabilization policy is the name given to government programs designed to prevent or shorten recessions and to counteract inflation (that is, to stabilize prices). Macroeconomists who advise governments engage in stabilization policy. During presidential elections, alternative or competing stabilization policies of the candidates often are key issues in the campaign.