Econ Unit 5: Economic Indicators, Fiscal & Monetary Policy

Term

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Gross Domestic Product (GDP)

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Terms in this set (45)

Gross Domestic Product (GDP)

the total value of all final goods and services produced within a country's borders in a given year

What are the four things calculated for GDP?

1.Consumption "C"
2.Investment "I"
3.Government Purchases "G"
4.Net Exports "NX"

consumption

spending by households on goods and services, with the exception of purchases of new housing

investment

Business spending for facilities and equipment.

government purchases

Spending by federal, state, and local governments on goods and services

net export

spending on domestically produced goods by foreigners exports minus spending on foreign goods by domestic residents imports

Which GDP is the accurate measure economic output of a country?

Real GDP is the accurate measure of economic output of a country. Real GDP is adjusted for inflation.

unemployment rate

the percentage of the nation's labor force that is unemployed

Consumer Price Index (CPI)

a price index determined by measuring the price of a standard group of goods meant to represent the typical "market basket" of a typical urban consumer

inflation

A general increase in prices; measured by the Consumer Price Index (CPI)

deflationa sustained drop in the price levelbusiness cyclea period of macroeconomic expansion followed by a period of contractionpeakUnemployment is at its lowest point & GDP is at its highest point (GDP stops rising)expansion or recoveryUnemployment falls, GDP rises, and CPI: inflation increasestroughUnemployment is at its highest point, GDP is at its lowest point, CPI prises remain stabalize.contractionUnemployment is rising, GDP is falling, and CPI prices is unstableper capita GDPa nation's gross domestic product (GDP) divided by its total populationstagflationa decline in real GDP combined with a rise in the price level (in other words, inflation during the contraction of the business cycle)structural unemploymentunemployment that occurs when workers' skills do no match the jobs that are available; usually involves new and/or changing technologycyclical unemploymentunemployment that rises during economic downturns and falls when the economy improves; tied to the contractionary phase of the business cycle; worst type of unemploymentfrictional unemploymentunemployment that occurs when people take time to find a job; usually by choice - someone between jobshyperinflationinflation that is out of control; very high inflationpurchasing powerthe ability to purchase goods and services; decreases due to inflationaggregate supplythe total amount of goods and services in the economy available at all possible price levelsaggregate demandthe amount of goods and services in the economy that will be purchased at all possible price levelsunderemployedworking at a job for which one is overqualified, or working part-time when full-time work is desiredequation for GDPC + I + G + NX = GDPprogressive taxA tax for which the percentage of income paid in taxes increases as income increases (example: income tax)regressive taxA tax for which the percentage of income paid in taxes decreases as income increases (ex: sales tax)proportional taxA tax in which the average tax rate is the same at all income levels.budget deficitWhen the government's expenditures (amount they spend) exceeds their revenue. (In other words, they government spends more than they make in tax revenue).budget surplusA situation in which the government takes in more than it spends (they have extra money because they did not spend it all)national debtthe total amount of money that a country's government has borrowed, by various means. (deficits add up to create the national debt)tax revenuethe amount of money the government collects in taxesexpansionary fiscal policyAn increase in government spending (building or creating jobs), a decrease in taxes, or some combination of the two for the purpose of increasing aggregate demand and increasing output (making the economy better during a contraction)contractionary fiscal policyoccurs when the government decreases spending or increases taxes to slow economic expansion (to stop inflation)fiscal policyGovernment policy that attempts to manage the economy by controlling taxing and spending.Federal ReserveThe country's central banking system, which is responsible for the nation's monetary policy by regulating the supply of money and interest rates (12 Federal Reserve banks in the US)monetary policyRegulation of the money supply by the Federal Reserve System (RRR, discount rate, open market operations)required reserve ratioThe percentage of its total deposits that a bank must keep as reserves at the Federal Reserve. (increase the RRR, money supply decreases; decrease the RRR, money supply increases)discount rateThe interest rate on the loans that the Federal Reserve makes to banks (increase the discount rate, money supply decreases; decrease the discount rate, money supply increases)open market operationsBuying & selling government securities to change the supply of money (buying bonds = BIGGER money - increase the money supply; selling bonds = SMALLER money - decrease the money supplyfull employmentthe level of employment reached when there is no cyclical unemploymenteconomic growtha steady, long-term increase in real GDPprice stabilityNo sudden increase or decrease in the overall price of goods