Term
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Definition
| calculates changes in prices by using numbers from the a base and neighboring years |
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Term
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Definition
| purchases of newly produced goods and services by households |
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Term
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Definition
| reduction int he value of capital goods over a one year period due to physical wear and tear. also called capital consumption allowance |
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Term
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Definition
| sustained increases in the real GDP of an economy over a long period of time |
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Term
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Definition
| the period after a trough in the business cycle in which the economy recovers |
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Term
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Definition
| a good or service produced in the home country that is send and sold in another country |
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Term
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Definition
| An index that measures how the prices of goods and services included in GDP change over time |
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Term
| GDP (Gross Domestic Product) |
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Definition
| The total value of final goods and services produced in a given year in a specific economy |
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Term
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Definition
| total investment expenditures |
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Term
| gross national product (GNP) |
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Definition
| GDP plus new income earned abroad |
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Term
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Definition
| the national income earned by a nation's resident both domestically and abroad in the production of good and services |
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Term
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Definition
| the value of GDP in current dollars |
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Term
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Definition
| A measure of GDP that controls for changes in price |
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Term
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Definition
| the sum of income -wages, interests, profits, and rents- generated by an organization. For a firm, we can measure value added by the dollar value of the goods and services purchased from other firms. |
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Term
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Definition
C+I+G+NX
consumption + investment + Govt. spending + net exports (does not include non market transactions, leisure time, the underground economy or effects on the environment |
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Term
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Definition
| total number of workers, both the employed and unemployed |
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Term
| labor force participation rate |
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Definition
| % of the population over 16 that is in the labor force |
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Term
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Definition
| workers who have left the labor force because they could not find jobs |
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Term
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Definition
| the component of unemployment attributed to seasonal factors |
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Term
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Definition
| fluctuations in unemployment that fluctuate with real GDP |
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Term
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Definition
| normal changed in employment, searching for better more suitable positions |
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Term
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Definition
| mismatch of skills to jobs. |
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Term
| natural rate of unemployment |
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Definition
| only frictional and structural employment |
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Term
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Definition
| the level of unemployment that occurs when the unemployment rate is the natural rate |
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Term
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Definition
| payments to unemployed received from govt. a transfer payment |
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Term
| consumer price index (CPI) |
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Definition
| a price index that measure the cost of a fixed basket of goods chose to represent the consumption patter of a typical consumer |
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Term
| Cost of Living Adjustments (COLAS) |
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Definition
| automatic increases in wages or other payments that are tied to the CPI calculations |
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Term
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Definition
| the percentage rate of a change in the price level |
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Term
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Definition
| negative inflation or falling prices of goods and services, lenders gain, borrowers suffer |
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Term
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Definition
| an increase in prices of goods and services, lenders suffer, borrowers gain |
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Term
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Definition
| the costs associated with changing prices and printing new price lists when there is inflation |
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Term
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Definition
| costs of inflation that arise from trying to reduce holding cash |
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Term
| unemployment rate calculation |
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Definition
| (unemployed/labor force) x 100 |
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Term
| CPI Calculation for a given year |
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Definition
| (cost of basked in year k/cost of basket in base year)x 100 |
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Term
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Definition
| economic models that assume wages and prices adjust freely to changes in supply and demand |
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Term
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Definition
| the relationship between the level of output of a good and the factors of production that are inputs to production |
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Term
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Definition
| the total of all machines, equipment, and buildings in an entire economy |
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Term
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Definition
| the wage rate paid to employees adjusted for changes in price level |
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Term
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Definition
| the level of output that results when the labor markets is in equilibrium and the economy is producing at full employment |
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Term
| real business cycle theory |
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Definition
| the economic theory that emphasizes how shocks to technology can cause fluctuations in economic activity |
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Term
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Definition
| the reduction in a component of GDP due to an increase in govt. spending |
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Term
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Definition
| an economy that does not trade internationally |
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Term
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Definition
| an economy that trades internationally |
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Term
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Definition
| the increase in a component of GDP due to a decrease in govt. spending |
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Term
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Definition
| increases in the stock of capital per worker |
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Term
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Definition
| more organized way to conduct economic affairs that allow an economy to increase output without increasing inputs |
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Term
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Definition
| knowledge and skills acquired by a worker through education and experience that allow them to produce goods and services |
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Term
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Definition
| GDP per person adjusted for changes in prices. Measures living standards across time and between countries |
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Term
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Definition
| the percentage rate of change of a variable from one to another |
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Term
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Definition
| a rule of thumb to calculate the amount of time a economy's output to double at a certain growth rate: 70/x where is is percentage as a whole number |
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Term
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Definition
| the process by which poorer countries close the gap with richer countries in terms of real GDP/ capita |
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Term
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Definition
| income that is not consumed |
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Term
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Definition
| determines the contribution to economic growth from increases capital, labor, and tech. progress |
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Term
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Definition
| firms will try to come up with new products and efficient ways of production to earn monopoly profits |
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Term
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Definition
| firms will try to come up with new products and efficient ways of production to earn monopoly profits |
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Term
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Definition
| modern theories of growth that try to explain the origins of technological process |
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Term
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Definition
| prices that fluctuate greatly and often ex: fruit and veggies at different times of the year |
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Term
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Definition
| prices that do not change drastically ex: steel, wages, and other items that have consistent prices over time |
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Term
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Definition
| period of time where prices do not change or do not change very much |
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Term
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Definition
| total demand for goods and services in an entire economy |
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Term
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Definition
[image]Aggregate Demand Curve: In blue.
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Term
| components of Aggregate Demand |
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Definition
| consumption, investment, govt. spending, net exports will shift the curve up or down. (increase in got. spending will move the curve right, increase in money supply will move the curve right, increase in taxes will shift the curve left, decrease in govt. spending will shift the curve left, decrease in money supply will shift curve left etc.) |
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Term
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Definition
| an increase in spending because the real value of money increases when the price level falls. Lower prices lead to higher levels of wealth and higher levels of wealth increases spending. When the price level rises, the real value of money decreases which reduces people's wealth and in turn their demand for goods and services. At higher prices, everything is more expensive so, even substitutes are out of economic reach. |
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Term
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Definition
| Lower price level will lead to a lowered interest rate. Lower interest rates allow firms and consumers to borrow money easier and make more purchases there fore demand increases. When interest rates increase, firms and consumers are less likely to borrow money, so demand decreases. |
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Term
| International Trade Effect |
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Definition
| if domestic goods become cheaper, the demand for them increase both domestically as well as the export rate due to the decrease in price. Imports will increase. If domestic goods increase in price, there will be an increase in imports as well as a decrease in exports. |
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Term
| Why does the Aggregate Demand Curve downward? |
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Definition
| wealth, interest and international trade effects. |
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Term
| Changes in money supply and effects on AD |
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Definition
| an increase in the money supply will shift the AD curve right. If the supply decreases, AD shifts left |
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Term
| changes in taxes and effect on AD |
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Definition
| decrease in taxes shift AD curve right, more money in circulation, an increase shift AD curve left, less money in circulation. |
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Term
| changes in govt. spending on AD curve |
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Definition
| when govt. spends more money, the AD curve shifts right, when govt. decreases spending, the AD curve shift left. |
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Term
| other changes and how they affect the AD curve |
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Definition
| foreign demand for goods can change with the growth or contraction of larger economy. ex: an increase in demand for our products will shift demand left. a contraction in their economy will lead to less desire for our goods shifting the curve left. |
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Term
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Definition
| the idea that a small change in a component of AD will result in a large overall increase or decrease in the long run. ex: govt. spends more money, therefore there is more money in circulation therefore consumption increases. |
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Term
| Consumption function equation |
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Definition
| C = Ca + by (Consumption spending = autonomous spending (constant) + (mpc x level of income) |
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Term
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Definition
Marginal Propensity to Consume:the likelihood of consumers to consume
additional consumption/additional income = MPC |
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Term
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Definition
Marginal Propensity to Save: the likelihood of saving over spending.
additional savings/additional income = MPS |
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Term
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Definition
| MPC+MPS=1 Consumers either consume or save. |
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Term
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Definition
[image]Aggregate Supply in Red |
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Term
| Short Run Aggregate Supply |
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Definition
| curve that demonstrates how prices do not change much over time and firms adjust production to meet demand. |
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Term
| Input prices and their affects of SRAS |
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Definition
| input prices: an increase in input prices will force the curve to shift the curve right. A decrease in input prices will shift the curve left. |
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Term
| State of Technology and its effect on SRAS |
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Definition
| Improvements in technology will shift curve left, a technological setback will shift it right |
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Term
| Taxes, Subsides, and govt. regulation and how they affect SRAS |
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Definition
| an increase in taxes will shift curve right, a new subside will shift curve left, a govt. regulation that disrupts business will shift the curve right. |
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Term
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Definition
~oil prices can increase drastically and then the SRAS will also shift right
~stagflation: an increase in prices and decrease in output |
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Term
| Long Run Aggregate Supply Curve |
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Definition
| Straight up and down, shows that prices change drastically over a long period of time while output does not change at all. |
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Term
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Definition
[image]Economy experiences a AD bust, first shifts to align with SRAS then moves to intersect with LRAS, shows an increase in prices and no overall change in output. |
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Term
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Definition
| increase in govt. spending and decrease in taxes to increase aggregate demand. used to grow the economy in a time of bust |
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Term
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Definition
| decrease in govt. spending and increase in taxes to decrease AD and slow economic growth |
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Term
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Definition
| stabilization by fiscal policy that create more change in demand as it trickles through the economy. both expansionary and contractionary policies are amplified. |
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Term
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Definition
| acts by the govt. to move economy toward full employment an potential output. |
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Term
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Definition
inside: the time it takes to formulate a policy to guide economy in wanted direction
outside: time it takes for policy to show affects on GDP and overall economy |
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Term
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Definition
| programs authorized on an annual basis that are NOT automatically funded by prior laws |
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Term
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Definition
| programs that are authorized by previous law or govt. agreement to receive federal funding annually |
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Term
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Definition
| income takes (bulk), gift taxes, social security taxes, death takes, customs duties, etc. Money the govt. spends. |
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Term
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Definition
| a school of thought that attributes importance to tax policy, looks at the effects of taxes on both supply and demand. |
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Term
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Definition
| lower taxes could yield higher govt. revenues. Bell shaped curve that shows a maximum at a median tax rate. |
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Term
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Definition
| taxes and transfer payments that help stabilize GDP without explicitly action taken by policymakers |
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Term
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Definition
| no modern fiscal policy, some changes to expand by increasing govt. spending, but tax also increased so there was no net fiscal expansion (Roosevelt and Hoover) |
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Term
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Definition
| Taxes were cut to decrease unemployment and increase tax revenues as the economy grew. unemployment rate decreased. |
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Term
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Definition
| Temporary tax implements were set to slow the overheating economy. Tax was not very effective because consumers went about spending as they did after the taxation took place. Did not change their spending habits. |
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Term
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Definition
| Supply side mentality. Tax cuts were aimed to increase output. |
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Term
| The Clinton and George W Admins |
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Definition
| Tax increases during Clinton's era made budget surpluses. George W did the complete opposite. |
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Term
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Definition
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Term
| Changes in Consumptions Function Slope |
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Definition
| an increase in autonomous spending shift the consumption function upward. an increase in mpc or income will increase or decrease the slope depending on the shock or change. |
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Term
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Definition
| the market in which the amount of money supplied and the amount demanded meet to determine the nominal interest rate |
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Term
| transaction demand for money |
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Definition
| the demand for money based on teh desire to facilitate transactions |
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Term
| Shifts and Changes for the demand of money |
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Definition
-prices changes: when increased, the demand for money shift right. when decreased, shift left
-real GDP: increase in GDP would would shift demand right, a decrease will shift demand left |
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Term
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Definition
| not easily transferable to money |
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Term
| liquidity demand for money |
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Definition
| allows to made transactions on short notice, cash on hand |
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Term
| speculative demand for money |
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Definition
| holding money for a short period of time, less risky than holding stocks and bonds |
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Term
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Definition
| the purchase or sale of US govt. securities by the Fed |
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Term
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Definition
| the purchase or sale of US govt. securities by the Fed |
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Term
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Definition
| the Fed's purchase of govt. bonds from the private sector |
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Term
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Definition
| the Fed sale of govt. securities to the private sector |
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Term
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Definition
| the interest rate at which banks can borrow from the Fed |
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Term
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Definition
| the market in which banks borrow and lend reserve to and from one another |
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Term
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Definition
| the interest rate on reserves that banks lend to each other |
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Term
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Definition
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Term
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Definition
price of bond = (promised payment)/(1 + interest rate)
in other words: present value over the amount of interest you will earn over time. |
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Term
| Bond prices rise as __________ fall. |
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Definition
| interest rates. and vice versa. Bond prices fall as interest rates increase. |
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Term
| Increased money demand will _____________ interest rates. |
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Definition
| increase. and vice versa. |
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Term
| Money supply increase and interest rates __________. |
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Definition
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Term
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Definition
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Term
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Definition
| rate at which currencies trade for one another in the market |
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Term
| depreciation of a currency |
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Definition
| a decrease in the value of a currency |
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Term
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Definition
| the period of time where prices have fully adjusted to any economic changes. |
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Term
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Definition
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Term
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Definition
| more worried about long run |
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Term
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Definition
| the process by which changes in wages and prices cause farther changes in wages and prices |
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Term
| Employment Below Natural Rate means.... |
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Definition
| output is about potential, wages and prices increase, work is easily found. |
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Term
| Employment is above natural rate means.... |
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Definition
| output is below potential, wages and prices fall, work is hard to come by. |
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Term
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Definition
| output is less than full employment prices will fall to get back to full employment |
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Term
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Definition
| output is more than full employment, prices will rise and output will decrease back to full employment |
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Term
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Definition
| A situation in which nominal interest rates are so low, they can no longer fall |
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Term
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Definition
| the effects on the economy of using monetary or fiscal policy to stimulate the economy before an election to improve reelection prospects |
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Term
| Long run neutrality of money |
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Definition
| a change in the supply o fmoney has no effect on real interest rates, investments, or output int eh long run. It does affect prices and therefore AD |
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Term
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Definition
| the amount of work your money can do |
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Term
| Prices are __________ to money supply. |
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Definition
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Term
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Definition
| wages expressed in current dollars |
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Term
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Definition
| wage rates paid to employees adjusted for changes in the price level |
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Term
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Definition
| confusion of real and nominal magnitudes |
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Term
| expectations of inflation |
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Definition
| the belief held by the public about the likely path of inflation in the future |
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Term
| expectations Philips Curve |
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Definition
| the relationship between unemployment and inflation when taking into account expectations of inflation |
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Term
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Definition
| the economic theory that analyzes how the public forms expectations in such a manner that on average they forecast the future correctly. |
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Term
| Shifts in Unemployments rate: |
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Definition
-demographics
-institutional changes
-the recent history of the economy
-changes in the growth of labor productivity |
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Term
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Definition
| the rate at which money turns over during the year. v$=(nominal GDP/Money Supply) |
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Term
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Definition
| the equation that links money, velocity, prices adn real output. M x V = P x Y |
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Term
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Definition
| an inflation rate exceeding 50%/ month |
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Term
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Definition
| revenue raised from money creation |
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Term
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Definition
| new borrowing from the public and new money created |
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Term
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Definition
| economists who emphasize the role that the supply of money plays in determining nominal income and inflation |
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Term
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Definition
| the price at which currencies trade for one another in the market |
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Term
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Definition
| the price of US goods and services relative to foreign goods adn services, expressed in a common currency |
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Term
| real exchange rate equations |
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Definition
| RER= (exchange rate x us price index)/(foreign price index) |
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Term
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Definition
| the theory that goods are easily traded across countries should sell at the same price. |
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Term
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Definition
| a theory to exchange rates whereby a unit of any given currency should be able to buy the same quantity of goods in all countries |
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