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| Theoretic models and economic theories that try to figure out how the economy works. |
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| Gov. intervention to help the economy achieve certain goals. |
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| Larger economic activity, generally provided by government or private economic sector. |
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The measure of economic activity using REAL prices.
Ex.Paycheck |
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The measure of economic activity using CONSTANT prices.
Ex. Nominal wage corrected by inflation over time. |
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The measurement of exact day
(Balance Sheet)
Ex. Inventory |
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The measurement that include a period of time.
(Income Statement)
Ex. Change in Inventory, GDP |
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Definition
An increase in the price of goods and services w/o an increase in quality of goods and services.
*monetary phenomenon |
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Consumer Price Index
- Measures basket of 400 items in avg families' purchases.
-400 items have prices fixed for 5 years
-Items weighed according to how much they spend. |
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-Published by US Department of Labor every month to show inflation
-Generally used by the gov. to cut taxes, raise wages, etc.
-The lower % food items represent, the less inflation! |
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| Core Consumer Price Index |
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Definition
| CPI-food and energy (b/c they fluctuate a lot) |
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Producer Price Index
- PPI- prices of energy and food
- If PPI increases, CPI increase after a few months |
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Personal Consumer Expenditure Index
-Measures the inflation used by the Federal Reserve System in determining their monetary policy.
-Includes ALL items consumers bought. |
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Price Index (GDP Deflator)
-Number used to correct GDP from nominal to real
-Measures ALL goods and services |
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Federal Reserve System
-Independent, don't have to ask anyone for permission. |
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| Represents consumer spending |
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| Represents exports-imports of goods/services |
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| Represents investments by businesses (of machinery, buildings, etc.) |
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Represents gov. spending on goods/services
-Transfer Payments
-Social Security Payments
-Welfare Payments, etc. |
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| Gross Domestic Product= C+I+G+(X-M) |
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Definition
| (Disinflation) Prices go down, a situation where inflation is falling |
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| Inflation, Win-Loose Situation |
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Definition
Debtors gain, pay back debt but dollar is worth less so they payback less.
Creditors lose, they get payments on their loans when the value of money is less. |
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Definition
-to keep inflation of money w/in 2% per year.
- inflation over deflation
-w/ inflation people buy now
-w/ deflation people wait to buy
-the more they wait, the lower prices go.
-business start losing money-> economic recession. |
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