Macroeconomics: Introduction to Economic Growth and Instability (Chapter 8)

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economic growth

(1) An outward shift in the PRODUCTION POSSIBILITIES CURVE that results from an increase in resource supplies or quality or ain improvement in TECHNOLOGY; (2) an increase of real ouput (GDP) or real output per capita

rule of 70

A method for determining the number of years it will take for some measure to double, given its annual percentage inrease. Ex: To dertermine teh number of years it will take for the price level to double, divide 70 by the annual rate of inflation

productivity

A measure of average output or real output per unit of input.For ex, the productivity of labor is determined by dividing real output by hours of work

business cycle

Recurring increases and decreases in the level of economic activity over periods of eyars; consists of peak, recession, trough, and recovery phases.

peak

Where business activity has reached a temporary maximum

recession

A period of declining real GDP, accompanied by lower real income and higher unemployment

trough

Where output and employment "bottom out" at their lowest levels; may be either shrot-lived or quite long

recovery

Where output and employment rise toward full employment; as this intensifies, the price level may begin to rise before full employment and full-capacity production return

labor force

Consists of people who are able and willing to work; those who are employed and those who are unemployed but activiely seeking work

unemployment rate

The percentage of the labor force unemployed at any time

discouraged workers

Employees who have left the labor force because they have not been able to find employment

frictional unemployment

Caused by workers voluntarily changing jobs and by temporary layoffs; unemployed workers between jobs

structural unemployment

Unemployment of workers whose skills are not demanded by employers, who lack sufficient skill to obtain employment, or who cannot easily move to locations where jobs are available

cyclical unemployment

Caused by insufficient total spending (or by insufficient aggegate demand)

full-employment rate of unemployment

The unemployment rate at which there is no cyclical unemployment of the labor force; equal to between 4 and 5 percent in the US because some frictional and structural employment is unavoidable

natural rate of unemployment (NRU)

The full-employment unemployment rate; the unemployment rate orccuring when there is not cyclical unemployment and the economy is achieving its potential output; the unemployment rate at which actual inflation equal expected inflation

potential output

The real output (GDP) an economy can produce when it fully employs its available resources

GDP gap

The amount by which actual GDP fall below potential output

Okun's law

The generalization that any 1-percentage-point rise in the unemployment rate above the full-employment unemployment rate will increase the GDP gap by 2 percent of teh potential output (GDP) of the economy

inflation

A rise in the general level of prices in an economy

demand-pull inflation

Increases in price level (inflation) resultng from an excess of demand over output at the existing price level, caused by an increase in aggregate demand

cost-push inflation

Increases in the price level (inflation) resulting from an incrase in resoruce costs (ex: raw-material prices) and haence in per-unit production costs; inflation caused by reductions in aggregate supply

per-unit production costs

The avertage production cost of a particular level of putput; total input cost divided by units of output

nominal income

The number of dollars received by an individual or group for its resources during some period of time

real income

The amount of od G and S that can be purchased with nominal income during some period of time; nominal income adjusted for inflation

anticipated inflation

Increasesin the price level (inflation) that occur at the expected rate

unanticipated inflation

Increases in the price level (inflation) at a rate greater than expected

cost-of-living adjustments (COLAs)

An automatic increase in the income (eages) of workers when inflation occurs guranteed by a collective gargaining contract between firms and workers

real interest rate

The interst rate expressed in dollars of onstant value (adjusted for inflation) and equal to the nominal interest rate less the expected rate of inflation

nominal interest reate

The interst rate expressed in terms of annual amounts currently charged for interst and not adjusted for inflation

deflation

A decline in the economy's price level

hyperinflation

A very rapid rise in the price level, an extremely high rate of inflation

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