Term
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Definition
| the total amount of goods and services produced by economy |
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Term
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Definition
| the % of working age people who want a job, but don't have one |
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Term
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Definition
| growth rate of price level |
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Term
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Definition
Result-Great Depression b/w 1929 and 1932
- Y in US decreases
- UR in US increases
-prices fall [deflation]
-wages fall as well, debts stay the same and can't be paid off |
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Term
| 1932 presidential election |
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Definition
-incumbent (Hoover)
-blamed for depression
-loses to Franklin D. Roosevelt |
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Term
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Definition
-oil producing countries embargo oil
-recession and inflation = stagnation
- Y decreases in 1974 and 75
-UR increases by 1975
-inflation = 9% in 1974,75 |
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Term
| 1976 presidential election |
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Definition
- incumbent (Ford)
- loses to Jimmy Carter
- shows "misery index" at record high |
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Term
| 1979 geopolitical turmoil in Middle East |
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Definition
- another big oil price increase
- again, stagflation
- Y decreases in 1980
- UR increases
- inflation = 9% in 1980 |
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Term
| 1980 presidential election |
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Definition
- incumbent (Carter)
-loses to Ronald Reagan |
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Term
| 1991 Pres. George Bush approval ratings |
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Definition
- economy slips into recession
- Y decreases in 1991, grows slowly in 1992
- UR increases in 1991, 92
- inflation, low |
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Term
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Definition
| those running for re-election win if economy is in good shape, lose otherwise (look at Y, UR, and inflation) |
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Term
| Nominal Gross Domestic Output (NGDP) |
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Definition
| total value at current market prices of all final good and services produced domestically this period |
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Term
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Definition
1. only new goods and services produced this period, not used
2. only domestic output is included
3. only final goods and services are included, not intermediate |
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Term
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Definition
count all transactions, but include only "value added" at each step
[value added = sales price - prince of intermediate outputs |
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Term
| categories of final transactions |
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Definition
1. consumption (C)
2. investment (I)
3. government (G)
4. exports (X) |
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Term
| National Income Accounting Identity |
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Definition
GDP = Y = C + I + G + (X - M)
Y = C + I + G + Nx |
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Term
| growth rate of real GDP (gRGDP) |
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Definition
| growth rate nominal GDP - inflation rate |
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Term
| RGDP for x (in base years) |
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Definition
| NGDP (year x) - price index of base year/ price index year x |
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Term
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Definition
- corrects for P changes
- differences of RGDP over time reflect Q changes
- corrects NGDP for inflation |
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Term
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Definition
RGDP/population
- best available measure of living standards, for comparisons over time or across countries |
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Term
| non-market goods and services |
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Definition
- home production
- leisure time
- environmental quality
-underground economy
(not included in GDP) |
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Term
| gross domestic product (GDP) |
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Definition
| the total market value of a country's output only includes final goods and services produced within a given period of time in a country |
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Term
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Definition
| for each product calculate P + Q, then sum up all final goods |
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Term
| output's evolution over time |
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Definition
1. trend GDP smooth line/ curve through data
2. business cycle: fluctuations around trend |
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Term
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Definition
| periods where actual Y > trend Y |
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Term
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Definition
| periods where actual Y < trend Y |
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Term
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Definition
- 1974-74 (stagflation)
- 1982-83 (Reagan/ Volker; man-made)
- 1991-92 (Bush)
- 2008-09 (largest since Great Depression) |
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Term
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Definition
- mid-1960s
- mid-1980s
- mid-to-late 1990s |
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Term
| contribution of component "x" to overall GDP growth |
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Definition
| ( growth rate of x) x (component x's share of Y) |
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Term
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Definition
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Term
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Definition
a way to estimate the number of years it takes for a certain variable to double
in order to estimate the number of years for a variable to double, take the number 70 and divide it by the growth rate of the variable |
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Term
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Definition
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Term
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Definition
| not employed, but actively seeking work |
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Term
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Definition
| not employed, not seeking work |
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Term
| Headline unemployment rate (U-3) |
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Definition
UR = UNEMP/ EMP + UNEMP
= UNEMP/ "Labor Force" |
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Term
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Definition
| involuntary part-time workers counted as "employed" |
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Term
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Definition
| former unemployed who give up looking for work (reclassified as not in labor force) |
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Term
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Definition
[UNEMP + Discouraged]
/(EMP + UNEMP + Discouraged) |
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Term
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Definition
[UNEMP + Discouraged + Underemployed]
/ (EMP + UNEMP + Discouraged) |
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Term
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Definition
temporary, voluntary UNEMP due to voluntary mobility
ex. moving, switching careers, new entry into labor force |
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Term
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Definition
| frictional UNEMP/(EMP + total UNEMP) x 100% |
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Term
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Definition
| rises during recessions, falls during booms |
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Term
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Definition
- cause by business cycle downturn
- involuntary job loss (unemployed until economy recovers) |
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Term
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Definition
- UR low skill > UR high skill
- involuntary long term unemployment |
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Term
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Definition
| output society would produce if UR = UR* (full employment) |
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Term
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Definition
Y* - actual Y
(how much Y is "lost" due to excessive UNEMP) |
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Term
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Definition
| for every percentage point of actual UR above UR*, output will fall by approximately 2% |
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Term
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Definition
1. unemployed lose income
2. everyone pays for UI
3. shareholders lose from lower dividends in recessions |
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Term
| consumer price index (CPI) |
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Definition
| measures aggregate inflation as a weighted average of inflation of many goods and services, with weights proportional to importance of each good/service in a typical household's budget |
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Term
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Definition
| P(basket)year x/ P(base year)x 100% |
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Term
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Definition
1. only tracks inflation experienced by "typical" households
2. substitution bias
3. quality change |
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Term
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Definition
| assumes that the basket of goods is held fixed over time, even as relative prices change |
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Term
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Definition
| in most cases CPI considers only "raw" price changes but goods change in quality over time |
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Term
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Definition
percentage difference between repayment and principal purchasing power terms
(r = i(nominal interest rate) - inflation) |
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Term
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Definition
nominal interest rate = real interest rate + expected inflation
(r = i + E[inflation]) |
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Term
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Definition
| If Eπ < 0, then r = 0 – Eπ (deflation rate) |
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Term
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Definition
1. inflation erodes real wages (false)
2. inflation helps borrowers at expense of lenders (false if inflation is expected) |
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Term
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Definition
1. inflation tax
2. menus/ shoeleather costs |
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Term
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Definition
| all inflation, anticipated or otherwise, reduces value of cash |
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Term
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Definition
| real resource cost spent coping with inflation, businesses have to change prices more frequently and people spend more time shopping for bargains and going to bank when inflation is high |
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Term
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Definition
very high and accelerating inflation
inflation > 100% per year |
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Term
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Definition
proximate cause: money supply grows too quickly
underlying cause: government prints money to cope with chronic large BD |
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Term
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Definition
| government spending > revenues |
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Term
| production possibilities frontier (PPF) |
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Definition
| social graphic representation of economy's resource/ technological capabilities |
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Term
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Definition
| shows maximum amount of Y that society can produce at a point in time, given amount of leisure time society consumes at any point in time, there is a trade-off between producing more output and enjoying more leisure time |
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Term
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Definition
| represents inefficient outcomes |
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Term
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Definition
represent changes to resources/ technology
- favorable changes-shifts out
- unfavorable changes-shifts in |
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Term
| classical view of business cycles |
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Definition
1. free market economy will always reach some point on PPF for every person
2. business cycles driven by supply shocks to ability/ willingness of society to produce output
3. booms/recessions are not caused by changes in AD
4. no role for govt. intervention to stabilize business cycles |
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Term
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Definition
supply creates its own demand
- if workers/firms are willing and able to make a certain Y, there will automatically be enough demand to buy that level of Y |
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Term
| keynesian model of business cycless |
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Definition
1. no technology/resource constraints
2. business cycles caused by AD shock: shocks to firms' ability to sell Y
3. role for govt to intervene in stabilization policy, govts can and should fight recessions |
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Term
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Definition
= value of assets - value of liabilities
= (what you own) - (what you owe) |
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Term
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Definition
| amount by which wealth changes over the period |
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Term
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Definition
1. "output-driven" expenditure
2. "autonomous" expenditure |
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Term
| "output-driven" expenditure |
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Definition
the part of AD that is directly influenced by how much Y firms make
(= MPC x (1 - t)Y) |
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Term
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Definition
component of AD that is not directly determined by how much Y firms make
(= A + MPC x TR + I + G + Nx) |
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Term
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Definition
1. consumer confidence
2. real household wealth |
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Term
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Definition
| optimism/pessimism about future income prospects |
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Term
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Definition
1. state of asset markets
2. price level for inflation |
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Term
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Definition
value of house - outstanding mortgage
part of household's wealth or net worth |
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Term
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Definition
1. investor confidence
2. real interest rate
high r - low I
low r - high I |
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Term
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Definition
1. business cycles overseas
2. competitiveness: the relative price of domestic output vs. foreign |
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Term
| what affects competitiveness |
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Definition
1. domestic inflation
2. foreign inflation
3. exchange rate b/w dollars, foreign currency |
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Term
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Definition
changes in autonomous expenditure
1 / 1 - MPC x (1 - t) |
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Term
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Definition
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Term
| expansionary fiscal policy |
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Definition
| G increases, TR increases, t decreases |
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Term
| contractionary fiscal policy |
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Definition
| G decreases, TR decreases, t increases |
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