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Econ 105-4
test 4
40
Economics
Undergraduate 1
11/06/2008

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Term
labor force (LF)
Definition
#employed plus #unemployed
Term
unemployment rate
Definition
#unemployed/labor force X100
Term
LF participation rate
Definition
LF/adult population X100
Term
discourage worker
Definition
an unemployed person who gives up looking for work. therefore this person is no longer in the labor force.
Term
types of unemployment
Definition
frictional, structural, cyclical
Term
frictional unemployment
Definition
temporary, voluntary,-takes time to look for job that a person wants
Term
structural unemployment
Definition
replaced by automation, no longer in demand, involuntary,-number of jobs in market is insufficent
Term
cyclical unemployment
Definition
due to changes in production over the business cycle, involuntary
Term
how much employment is full employment (FE)?
Definition
a situation in which there is no cyclical unemployment-about 4-6% unemployment or about the level of fricational + structural
Term
potential output:
Definition
what the output could be if at FE
Term
3 reasons of natural rate
Definition
1. unions- W go up, E goes down
2. min wages- Wmin > Wequilibrium Edown
3. efficiency wage W > Wequilibrium
Term
Gross domestic production
Definition
the market value of all final goods and services produced within a country in a given period of time
Term
gross national product
Definition
the market value of all final goods and services produced by permanent residents of a nation
Term
consumer expedinture (C)
Definition
total ammount spent by consumers on a newly produced goods and services (excluding new homes, which are considered investment goods)
Term
investment spending (I)
Definition
sum of all the expenditures of businesses firms on new plant and equipment, plus expenditures on new homes
Term
government purchases (G)
Definition
all goods and services purchases by all levels of government
Term
export imports (NX)
Definition
difference between what we sell to foreigners and what we buy from them (X-M)
Term
GDP=Y=total ammount on final goods and services, Y=C+I+G+NX
Definition
GDP=Y=sum of all incomes earned Y=w+r+i+profit (excludes transfer payments)
Term
national (GDP)
Definition
value of all output at current prices
Term
real GDP
Definition
GDP at constant prices. it is a measure of the economy production of goods and services holding prices constant
Term
growth in economy (triangleQ)
Definition
(real GDP1-real GDP2)/real gdp0 X 100
Term
GDP deflater
Definition
a measure of the price level calculated as nominal GDP/real GDP X 100. tells us the increase in the normal GDP due to increases in prices rather than a increase in quantity produced
Term
inflation rate
Definition
P1-P0/P0 X100
Term
growth rate of price
Definition
Def1-Def0/Def0 X 100
Term
growth rate of triangleQ
Definition
Real GDP1-Real GDP0/real GDP X100
Term
CPI problems
Definition
1.Substitution bias
2.introduction of new goods
3.unmeasured quality changes
Term
nominal interest rate
Definition
the interest rate without a correction for the effects of inflation. nominal=real+expected inflation rate
Term
real interest rate
Definition
the interest rate corrected for the effect of inflation. it is the opportunity cost of borrowing money.
Term
prices go up...
Definition
discourages-savings, investors
encourages-borrowing, spending
Term
financial system
Definition
group of institutions the economy that help to match one person's saving with another person's investment
Term
nominal=real+expected inflation
Definition
true
Term
economic growth and public policy
Definition
saving=investment
Term
fiancial markets
Definition
financial institutions through which savers can directly provide funds to borrowers
Term
bond
Definition
is a certificate of indebtedness that specifies the obligation of the borrowers to the holder of the bond
Term
3 characteristics of bonds
Definition
1.term-longer term & higher rate
2.risk-junk bond-one that doesnt pay off, risky (3rd world country)
3.tax treatment- no fed tax?
Term
stock
Definition
ownership in a firm, therefore a claim to the profits that the firm makes
1. equity finance
2. higher risk and potentially higher returns
3.supply and demand for the stock determine its price
Term
financial intermediaries
Definition
financial institutions through which savers can indirectly provide funds to borrowers
Term
mutual funds
Definition
a selection or portfolio of various types of stocks bonds or both stocks and bonds
1.diversity
2.specialization
Term
market for lonable funds
Definition
the market in which those who want to save supply funds and those who want to borrow to invest demand funds
Term
3 government policies that affect the economy's savings and investment
Definition
1.taxes and savings
2.taxes and investment
3.government budget deficits
an increase in the budget defict drives investment spending down
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