market value of the final goods and services produced within a country
item that is bought by its final user during a specified time period
item that is produced by one firm bought by another and used as a component of a final good
governments buy goods and services from firms
total amount spent both buying new capital and replacing depreciated capital
amount by which the value of capital increases
value of final goods and services produced in a given year when valued at the prices of a reference base year
value of final goods and services produced in a given year valued at the prices of that year.
when all the economy's labor capital land and entrepreneurial ability are fully employed
sum of the employed and the unemployed
percentage of the people in the labor force who are unemployed
unemployment rate= # of people unemployed/labor force
marginally attached worker
currently neither working nor looking for work but has indicated that he or she wants and is available for a job
worker who has stopped looking for a job because of repeated failure to find one
the short-term unemployment associated with the process of matching workers with jobs
unemployment that arises when changes in technology or international competition change the skills needed to perform jobs or change the locations of jobs
extra unemployment due to a recession
a measure of the overall level of prices at a particular point in time as measured by a price index such as the CPI
annual percentage change of the price level
a situation in which inflation rate is extremely high
consumer price index (CPI)
measure of the average of the prices paid by urban consumers for a fixed basket of consumer goods and services
CPI= cost of CPI basket at current prices/cost of CPI basket at base-period prices
inflation rate equation
inflation rate= CPI this year- CPI last year/ CPI last year
demand for labor
relationship between the quantity of labor demanded and the real wage rate
real wage rate
money wage rate divided by the price level
real interest rate
nominal interest rate adjusted to remove the effects of inflation on the buying power of money
income earned minus net taxes
adjusts the quantity of money in circulation
inflation rate = money growth rate - real GDP growth rate
The principle of comparative advantage sates that countries tend to
concentrate on activities that have the lowest opportunity cost
According to the cost benefit principle, a decision should be taken if
implicit and explicit costs are smaller than the benefit
The scarcity principle states that while our needs are ________, the resources available to us are________.
The GDP is _________ with indicators of well-being such as _______:
positively correlated; health and education.
The GDP does not measure
quality of life
The respective shares of labor and capital income in total income are:
The main component of investment is:
business fixed investment
In the recent past, the largest expenditure in total expenditure has been:
The production of a Danone factory (French company) located in the US:
is not included in the GNP
is included in the GDP
Government goods and services are:
included in the GDP valued at their cost
Women increased labor force participation since the 1960's has:
increased the GDP artificially
increased paid household worked
The GDP represents
The US Gross domestic product is a measure of
The US Gross domestic product is measured in
The value of the flour used to make a loaf of bread is not included in GDP because it is not a
A good that is used as a tool to produce other goods is known as a
Which of the following is not one of the components added together to measure GDP using the expenditures approach?
GDP that has been adjusted for inflation is called
The real and nominal GDP of the base year are:
always the same
The consumer price index measures:
the cost of living
A nominal quantity is:
measured in terms of its current dollar value.
The wage paid to workers measured in terms of purchasing power
The practice of increasing a nominal quantity according to changes in the price level to prevent inflation from eroding purchasing power
NOT a cost of inflation?
When high inflation makes market signals difficult to interpret, it is called
noise in the price system
A situation in which the inflation rate is extremely high is known as
The annual percentage increase in the purchasing power of a financial asset is called the:
real interest rate
When inflation increases unexpectedly, which of the following will decrease?
real interest rate
The tendency for nominal interest rates to be high when inflation is high is known as the
The CPI in 1997 equals 1.02 The CPI in 1996 equals 1. The rate of inflation between 1996 and 1997 is ____ percent
The Boskin Commission found that the CPI _____ the true inflation rate
What is never considered a source of inflation?
The shoe-leather cost
What is true about nominal interest rates
they are always positive.
they can be directly observed.
Since the 1960's the nominal wage of production workers has_______ and their purchasing power has________.
If, holding the amount of capital and other inputs constant, additional labor adds less and less additional output, a firm is experiencing
diminishing returns to labor
will decrease a firm's demand for labor?
A lower relative price of output
The supply of labor decreases when:
Baby boomers retire.
The compensation that leaves you just indifferent between working and not working is your
If a new college graduate takes 3 months after graduation to find the right job, the graduate is experiencing which type of unemployment during the 3 months?
A worker who can't find a job because of a lack of skills is experiencing which type of unemployment?
A worker who is unemployed due to a recession is experiencing which type of unemployment?
Structural unemployment can occur:
Both in periods of expansion and recession.
Cyclical unemployment can occur:
Only in periods of recession.
Frictional unemployment can occur:
Both in periods of expansion and recession.
Which of the following may be an impediment to full employment?
Minimum wage laws
Compared to U.S. unemployment rates, unemployment rates in Western Europe since 1980 have been
trend characterizes the labor markets of the industrialized world?
Since the early 1970's the rate of real wage growth has slowed.
trends in employment over the past two decades characterizes the industrialized world?
The number of people with jobs in the U.S. has grown
In the US, globalization has:
Decreased labor demand for low skilled workers.
In the US, technological progress has:
Increased labor demand for high skilled workers.
Transition aid programs aim at:
Decreasing the labor supply of low skilled workers.
In the US, globalization and technological progress are related because:
"Winning" American industries in international competition tend to use the most sophisticated technologies.
. In Europe, the high rate of unemployment is the result of:
A rigid labor market that has not adapted to globalization.
High minimum wages.
Powerful labor unions.
High structural unemployment.
In the US, increased wage inequality is the result of:
A flexible labor market that has adapted to globalization.
The total benefit of undertaking n units of an activity divided by n
total cost for all units bought (or produced) divided by the number of units
the benefit of taking any action minus its cost
the additional benefit to a consumer from consuming one more unit of a good or service
the additional cost to a firm of producing one more unit of a good or service
normative economic principle
one that says how people SHOULD behave
positive economic principle
One that predicts how people will behave.
whatever must be given up to obtain some item
A cost that has already been committed and cannot be recovered
boundless needs/wants, limited resources (have to choose)
individual or firm should take action ONLY if benefit are at least as great as the extra costs
individual/firm more likely to take action if benefit rises (and vise versa)
Principle of Comparative Advantage
everyone does best when each person (or country) focuses on what they are best at
Principle of Increasing Opportunity Cost
in expanding the production of any good first employ those resources with the lowest opportunity cost.
the ability of an individual, a firm, or a country to produce more of a good or service than competitors, using the same amount of resources
Any combination of goods that can be produced using currently available resources.
Any combination of goods for which currently available resources do not allow an increase in the production of one good without a reduction in the production of the other.
Any combination of goods for which currently available resources enable an increase in the production of one good without a reduction in the production of the other.
any combination of goods that cannot be produced using currently available resources
The procuring of services or products, such as the parts used in manufacturing a motor vehicle, from an outside supplier or manufacturer in order to cut costs
production possibility curve
shows the maximum combinations of goods and services that can be produced by an economy in a certain time period, given that all resources are used efficiently; used to illustrate opportunity cost
a principle stating that efficiency is an important social goal because when the economic pie grows larger, everyone can have a larger slice.
a principle stating that a market in equilibrium leaves no unexploited opportunities for individuals but may not exploit all gains achievable through collective action.
buyer's reservation price
the largest dollar amount the buyer would be willing to pay for a good
The difference between the buyer's reservation price and the price he or she actually pays
change in demand
a change in the quantity demanded of a good or service at every price; a shift of the demand curve to the left or right.
two goods for which an increase in the price of one leads to a decrease in the demand for the other
a graph of the relationship between the price of a good and the quantity demanded
the change in consumption resulting from a change in real income
a good for which, other things equal, an increase in income leads to an increase in demand
a maximum price that can be legally charged for a good or service
socially optimal quantity
The quantity of a good that results in the maximum possible economic surplus from producing and consuming the good.
goods that can serve as replacements for one another, when the price of one increases, demand for the other goes up
a graph of the relationship between the price of a good and the quantity supplied
The difference between the buyer's reservation price and the seller's reservation price
a long-lived good, which is itself produced and used to produce other goods and services
"Spending by households on goods and services such as food, clothing, and entertainment."
(G) expenditures by government for goods and services that government consumes in providing public goods and for public (or social) capital that has a long lifetime; the expenditures of all governments in the economy for those final goods and services
spending by firms on final goods and services, primarily capital goods
exports minus imports
the GDP measured in terms of the price level at the time of measurement (unadjusted for inflation)
GDP adjusted for inflation
the gross value of the product minus the costs of raw materials and energy.
Consumer Price Index
Shows changes in the average prices of goods and services purchased by consumers over a period of time
deflating (a nominal quantity)
process of dividing a nominal quantity by a price index to express in real terms
a situation where the prices of most goods and services are falling over time (inflation is negative)
rate of inflation
the rate of change of prices (as indicated by a price index) calculated on a monthly or annual basis
a measure of the average price of a given class of goods or services relative to the price of the same goods/services in a base year
a quantity that is measured in terms of its current dollar value
a quantity that is measured in physical terms - for example, in terms of quantities of goods and services.
the wage paid to workers measured in terms of purchasing power; the real wage for any given period is calculated by dividing the nominal (dollar) wage by the CPI for that period
the price of a specific good or service in comparison to the prices of other goods and services
nominal interest rate
the annual percentage increase in the nominal value of a financial asset
bonds that pay a nominal interest rate each year equal to a fixed real rate plus the actual rate of inflation durring that year
the movement of workers between jobs, firms, and industries
a period durring which an individual is continuously employed