Macroeconomics: Introduction to Economic Growth and Instability (Chapter 8)
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32 terms
Terms | Definitions |
|---|---|
 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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