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96 terms

Econ 102 - Macroeconomics; unit 2

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Economy
The structure of economic activity in a community, a region, a country, a group of countries, or the world
Gross domestic product (GDP)
The market value of all final goods and services produced in the nation during a particular period, usually a year
Gross world product
The market value of all final goods and services produced in the world during a given period, usually a year
Flow variable
A measure of something over an interval of time, such as your income per week
Stock variable
A measure of something at a particular point in time, such as the amount of money you have with you right now
Mercantilism
The incorrect theory that a nation's economic objective should to be to accumulate precious metals in the public treasury; this theory prompted trade barriers to cut imports, but other countries retaliated, reducing trade and the gains from specialization
Expansion
A period during which the economy grows as reflected by rising output, employment, income, and other aggregate measures
Contraction
A period during which the economy declines as reflected by falling output, employment, income, and other aggregate measures
Depression
A severe and prolonged reduction in economic activity as occurred during the 1930s
Recession
A period of decline in economic activity lasting more than a few months, as reflected by falling output, employment, income, and other aggregate measures
Inflation
An increase in the economy's average price level
Leading economic indicators
Variables that predict, or lead to, a recession or recovery; examples include consumer confidence, stock market prices, business investment, and big-ticket purchases, such as automobiles and homes
Coincident economic indicators
Variables that reflect peaks and troughs in economic activity as they occur; examples include employment, personal income, and industrial production
Lagging economic indicators
Variables that follow, or trail, changes in overall economic activity; examples include the interest rate and the average duration of unemployment
Aggregate output
A composite measure of all final goods and services produced in an economy during a given period; real GDP
Aggregate demand
The relationship between the economy's price level and aggregate output demanded, with other things constant
Price level
A composite measure reflecting the prices of all goods and services in the economy relative to prices in a base year
Real gross domestic product (GDP)
The economy's aggregate output measured in dollars of constant purchasing power
Aggregate demand curve
A curve representing the relationship between the economy's price level and real GDP demanded per period, with other things constant
Aggregate supply curve
A curve representing the relationship between the economy's price level and real GDP supplied per period, with other things constant
Federal budget deficit
A flow variable measuring the amount by which federal government outlays exceed federal government revenues in a particular period, usually a year
Demand-side economics
Macroeconomic policy that focuses on shifting the aggregate demand curve as a way of promoting full employment and price stability
Supply-side economics
Macroeconomic policy that focuses on a rightward shift of the aggregate supply curve through tax cuts or other changes to increase production incentives
Federal debt
A stock variable that measures the net accumulation of annual federal deficits
Expenditure approach to GDP
Calculating GDP by adding up spending on all final goods and services produced in the nation during the year
Income approach to GDP
Calculating GDP by adding up all earnings from resources used to produce output in the nation during the year
Final goods and services
Goods and services sold to final, or end, users
Intermediate goods and services
Goods and services purchased by firms for further reprocessing and resale
Double counting
The mistake of including both the value of intermediate products and the value of final products in calculating GDP; counting the same production more than once
Consumption
Household purchases of final goods and services, except for new residences, which count as investment
Investment
The purchase of new plants, equipment, buildings, and residences, plus net additions to inventories
Physical capital
Manufactured items used to produce goods and services; includes new plants and new equipment
Residential construction
Building new homes or dwelling places
Inventories
Producers' stocks of finished and in process goods
Government purchases
Spending for goods and services by all levels of government; government outlays minus transfer payments
Net exports
The value of a country's exports minus the value of its imports
Aggregate expenditure
Total spending on final goods and services in an economy during a given period, usually a year
Aggregate income
All earnings of resource suppliers in an economy during a given period, usually a year
Value added
At each stage of production, the selling price of a product minus the cost of intermediate goods purchased from other firms
Disposable income (DI)
The income households have available to spend or to save after paying taxes and receiving transfer payments
Net taxes (NT)
Taxes minus transfer payments
Financial markets
Banks and other financial institutions that facilitate the flow of funds from savers to borrowers
Injection
Any spending other than by households or any income other than from resource earnings; includes investment, government purchases, exports, and transfer payments
Leakage
Any diversion of income from the domestic spending stream; includes saving, taxes, and imports
Underground economy
Market transactions that go unreported either because they are illegal or because people involved want to evade taxes
Depreciation
The value of capital stock used up to produce GDP or that becomes obsolete during the year
Net domestic product
GDP minus depreciation
Nominal GDP
GDP based on prices prevailing at the time of production
Base year
The year with which other years are compared when constructing an index; the index equals 100 in the base year
Price index
A number that shows the average price of products; changes in a price index over time show changes in the economy's average price level
Consumer price index, CPI
A measure of inflation based on the cost of a fixed market basket of goods and services
GDP price index
A comprehensive inflation measure of all goods and services included in the GDP
Chain-weighted system
An inflation measure that adjusts the weights from year to year in calculating a price index, thereby reducing the bias caused by a fixed price weighting system
Labor force
Those 16 years of age and older who are either working or looking for work
Unemployment rate
The number unemployed as a percentage of the labor force
Discouraged workers
Those who drop out of the labor force in frustration because they can't find work
Labor force participation rate
The labor force as a percentage of the adult population
Frictional unemployment
Unemployment that occurs because job seekers and employers need time to find each other
Seasonal unemployment
Unemployment caused by seasonal changes in the demand for certain kinds of labor
Structural unemployment
Unemployment because 1. the skills demanded by employers don't match those of the unemployed, or 2. the unemployed don't live where the jobs are
Cyclical unemployment
Unemployment that fluctuates with the business cycle, increasing during contractions and decreasing during expansions
Long-term unemployed
Those out of work for 27 weeks or longer
Full employment
Employment level when there is no cyclical unemployment
Unemployment benefits
Cash transfers to those who lose their jobs and actively seek employment
Underemployment
Workers are overqualified for their jobs or work fewer hours than they would prefer
Hyperinflation
A very high rate of inflation
Deflation
A sustained decrease in the price level
Disinflation
A reduction in the rate of inflation
Demand-pull inflation
A sustained rise in the price level caused by a rightward shift of the aggregate demand curve
Cost-push inflation
A sustained rise in the price level caused by a leftward shift of the aggregate supply curve
Interest
The dollar amount paid by borrowers to lenders
Interest rate
Interest per year as a percentage of the amount loaned
Nominal interest rate
The interest rate expressed in dollars of current value (that is, not adjusted for inflation) as a percentage of the amount loaned; the interest rate specified on the loan agreement
Real interest rate
The interest rate expressed in dollars of constant purchasing power as a percentage of the amount loaned; the nominal interest rate minus the inflation rate
COLA
Cost-of-living adjustment; an increase in a transfer payment or wage that is tied to the increase in the price level
Productivity
The ratio of a specific measure of output, such as real GDP, to a specific measure of input, such as labor; in this case productivity measures real GDP per hour of labor
Labor productivity
Output per unit of labor; measured as real GDP divided by the hours of labor employed to produce that output
Per-worker production function
The relationship between the amount of capital per worker in the economy and average output per worker
Capital deepening
An increase in the amount of capital per worker; one source of rising labor productivity
Rules of the game
The formal and informal institutions that promote economic activity; the laws, customs, manners, conventions, and other institutional elements that determine transaction costs and thereby affect people's incentive to undertake production and exchange
Industrial market countries
Economically advanced capitalist countries of Western Europe, North America, Australia, New Zealand, and Japan, plus the newly industrialized Asian economies of Taiwan, South Korea, Hong Kong, and Singapore
Developing countries
Countries with a low living standard because of less human and physical capital per worker
Basic research
The search for knowledge without regard to how that knowledge will be used
Applied research
Research that seeks answers to particular questions or to apply scientific discoveries to develop specific products
Industrial policy
The view that government - using taxes, subsidies, and regulations - should nurture the industries and technologies of the future, thereby giving these domestic industries an advantage over foreign competition
Convergence
A theory predicting that the standard of living in economies around the world will grow more similar over time, with poorer countries eventually catching up with the richer ones
Consumption function
The relationship in the economy between consumption and income, other things constant
Marginal propensity to consume (MPC)
The fraction of a change in income that is spent on consumption; the change in consumption divided by the change in income that caused it
Marginal propensity to save (MPS)
The fraction of a change in income that is saved; the change in saving divided by the change in income that caused it
Saving function
The relationship between saving and income, other things constant
Net wealth
The value of assets minus liabilities
Life-cycle model of consumption and saving
Young people borrow, middle agers pay off debts and save, and older people draw down on their savings; on average, net savings over a lifetime is usually little or nothing
Investment function
The relationship between the amount businesses plan to invest and the economy's income, other things constant
Autonomous
A term that means "independent"; for example, autonomous investment is independent of income
Government purchase function
The relationship between government purchases and the economy's income, other things constant
Net export function
The relationship between net exports and the economy's income, other things constant