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Macroeconomics 2030 test 2
n/a
33
Economics
Undergraduate 2
10/13/2010

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Term
Macroeconomics Indicators
Definition

measures of economic performance

Ex. unemployment rate

Term
anti-cyclical variable
Definition
moves in the opposite direction to real GDP with a slight lag during a business cycle
Term
Frictional Unemployment
Definition
short-term unemplyment that arises from the normal turnover in labor markets (e.g., workers relocationg to a different region, looking for a higher paying job, etc)
Term
Structural Unemployment
Definition
unemployment arising form lack of skill; often results from technological progress (typewriters being replaced by computers). Usually, lasts longer than frictional unemployment (takes time to aquire a new skill)
Term
Cydical Unemployment
Definition
unemployment caused by a business cycle (recession)
Term
Natural Rate of Unemployment
Definition
the "normal" rate of unemployment , consisting of frictional unemployment plys structural unemployment, which will exist when Real GDP equals potential GDP
Term
Labor Unions
Definition

Bargain with employers for higher wages and better working conditions for their members

Protect insiders (members of the union) but hurt outsiders, causing unemployment

Labor markets in Europe are more unionized than in the U.S.

Term
Inflation Rate
Definition

The percentage increase in the price level from one year to the next and shows the change in the cost of living.

Inflation rate can be calculated using different measures of aggregated price level, such as the GDP deflator, consumer price index, producer price indes

Inflation calculated using the GDP deflator may not reflect the true change in the cost of living of a typical family; GDP deflator is very broad because it includes all goods and services produced in a given year.

Term
Consumer price index (CPI)
Definition
an average of the prices of the goods and services purchased by a typical urban family
Term
CPI Bias #1: Substitution Bias
Definition
as some goods get more expensive, consumers substitute them with cheaper goods; the CPI is measured on a fixed market base and, therefore, does not reflect this substitution.
Term
CPI Bias #2: Increase in Quality Bias:
Definition
some increases in prices reflect an increase in quality of goods and are not just pure inflation.
Term
CPI Bias #3: New Product Bias
Definition
some new goods (especially electronics) get considerable cheaper immediately after they've been introduced to consumers; the CPI fails to reflect this
Term
CPI Bias #4: Outlet Bias
Definition
internet shopping becomes increasingly popular; the CPI does not reflect this because the BLS collects receipts from actual stores and not internet retailers
Term
nominal interest rate
Definition
is the stated interest rate on a loan (that a bank charges you)
Term
real interest rate
Definition
is the nominal interest rate minus the inflation rate
Term
Labor Productivity
Definition

is the quantity of goods and services that can be produced by one worker or by one hour of work

Determined by two key factors:

1. the quantity of capital per hour worked

2. the level of technology

Term
Capital
Definition
is manufactured goods that are used to produce other goods and services
Term
investment
Definition
is acquisition of capital by firms
Term
Technological change
Definition
is an increase in the quantity of output firms can produce using a given quantity of inputs; is more important for economic growth than capital per hours worked
Term
financial system
Definition
is the system of financial markets and financial intermediaries through which firms acquire funds from households to make investments
Term
financial markets
Definition
are markets where financial securtites, such as stocks and bonds, are bought and sold.
Term
financial intermediaries
Definition
are firms, such as banks, mutual funds, pension funds, and insurance compandies, that borrow funds from savers and lend them to borrowers. Households' savings are transformed into firms' inverstments
Term
Market for loanable funds
Definition
is the interaction of borrowers and lenders that determines the market interest rate and the quantity of loanable funds exchanged
Term
Global Convergence Theory
Definition
a theory that there will be an inverse relationship between the rate of growth and living standards or real GDP per capita (in other words, poor countries should grow faster than wealthy countries)
Term
Idea 1 behind global convergence
Definition
technology and information are difficult to control and hence move repidly across borders
Term
Idea 2 behind global convergence
Definition
there are diminishing returns to capital investment
Term
Reasons why global convergence isn't seen by developing countries
Definition

1. lack of economic freedom and private property rights

2. political instability

3. low rates of saving and investment

4. poor public education and health

 

Term
efficiency wage
Definition
a higher-than-market wage that a firm pays to increase worker productivity
Term
price level
Definition
a measure of the aerage prices of goods and services in the economy
Term
deflation
Definition
a decline in the price level
Term
long-run economic growth
Definition
the process by which rising productivity increases the average standard of living
Term
potential GDP
Definition
the level of GDP attained when all firms are producing at capacity
Term
crowding out
Definition
a decline in private expenditures as a result of an increase in government puchases
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