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83 Cards in this Set
- Front
- Back
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Gross domestic product, or GDP
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The total output of an economy. Is an indicator of economic performance that measures the market value of g's & s's produced w/in a country.
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The consumer price index, or CPI
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Measures the cost of living by evaluating the cost of g & s.
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Bureau of Labor Statistics
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Gathers information on the status of the economy.
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Fixed basket
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A group of g & s use to calculate the CPI
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Gross domestic product deflator (GDP deflator)
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Shows how much of the change in the GDP from a base year is reliant on changes in the price level.
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Gross domestic product per capita (GDP per capita)
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GDP is divided among the people in the population.
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Gross national product (GNP)
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An alternative measure of economic activity to GDP. GNP is the sum of the market values of all goods and services produced by the citizens of a country regardless of their physical location.
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Nominal gross domestic product (nominal GDP)
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The sum value of goods and services produced in a country and valued at current prices.
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Real gross domestic product (real GDP)
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The sum value of goods & services produced in a country & valued at constant prices, calibrated from some base year. Real GDP frees year-to-year comparisons of output from the effects of changes in the price level.
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Gross Domestic Product, formula:
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GDP = [(quantity of A X price of A) + (quantity of B X price of B) + ... + (quantity of N X price of N)] for every good and service produced within the country
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Keynesian
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Is the mixture of economies that include both private & public sectors.
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What publishes the CPI every month?
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The Bureau of Labor Statistics
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Three problems with the CPI
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The substitution bias, the introduction of new items, and quality changes.
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Cyclical Unemployment
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Unemployment based on normal fluctuations in the business cycle.
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Efficiency Wages
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Are wages given to employees to keep them happy.
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Efficient Market
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A market where the quantity supplied=quantity demanded & the price of goods is set at the equilibrium price.
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Equilibrate
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Describes the movement of the factors of a market set at the equilibrium price.
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Equilibrium Wage
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The wage in the labor market where labor supply=labor demand & the market clears.
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Frictional Unemployment
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A type of unemployment in which an individual is between jobs.
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Full Capacity
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When the economy is producing at an output level to the natural rate of unemployment, or about 6%.
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Full Output
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The level of output that occurs when the labor force is at full employment.
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Laspeyres Index
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An index where the basket of goods is fixed.
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Market-Clearing Level
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The level, price, or quantity where supply and demand are equal.
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Menu Costs of Inflation
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When businesses have to adjust prices based on current inflation.
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National Output
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The total value of goods and services produced by an economy in a specified time period. Also known as GDP.
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Natural Rate of Unemployment
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The rate of unemployment that the economy tends to hover around. Most economists believe that this value is around 6%.
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Nominal Prices
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Prices of goods and services valued at dollars current when the goods and services were provided. Nominal prices are not adjusted for inflation.
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Okun's Law
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This details the inverse relationship between unemployment and real GDP.
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Out of the Labor Force
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Describes people who are not employed and are not currently looking for employment. This includes children and retirees.
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Paasche Index
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An index based upon a flexible basket of goods and services.
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Phillips Curve
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Describes the general inverse relationship between unemployment and inflation.
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Potential Output Level
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The output of an economy when all of the productive factors, including labor, are used at their normal rate. In terms of unemployment, this corresponds to a 6% unemployment rate.
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Purchasing Power
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The amount of goods and services that a unit of currency can buy.
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Shoeleather Cost of Inflation
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Costs of expected inflation caused by people having to make more trips to the bank to make withdrawals because they do not want to keep cash on hand.
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Stagflation
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When inflation and unemployment both increase. This phenomenon seems to negate the general applicability of the Phillips Curve.
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Structural Unemployment
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Unemployment due to a mismatch between workers' skills and firms' needs.
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Total Labor Force
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The sum of employed workers and unemployed job searchers.
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Unexpected Inflation
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Inflation that economists and consumers do not expect.
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How does the Bureau of Labor Statistics calculate unemployment?
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egularly gathers data from 60,000 households to compute the unemployment rate.
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Commodity Money
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Money that has an intrinsic value, that is, value beyond any value given to it because it is money. An example of this would be a gold coin that has value because it is a precious metal.
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Compound Interest
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Interest that is paid on a sum of money where the interest paid is added to the principal for the future calculation of interest.
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Fiat Money
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Money that has no intrinsic value, that is, its only value comes from the fact that a governing body backs & regulates the currency. This system only works if a gov't backs the money & regulates its production.
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Fischer Effect
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The point for point relationship between changes in the money supply and changes in the inflation rate.
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Liquidity
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The ease with which something of value can be exchanged for the currency of an economy.
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Medium of Exchange
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An item used commonly to trade for goods and services.
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Money Supply
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The quantity of money in an economy. In the US this is controlled through policy by the Fed.
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Nominal Interest
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The percent of the amount borrowed paid each year to the lender by the borrower in return for the use of the money not taking inflation into account.
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Nominal Value
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The value of something in current dollars without taking into account the effects of inflation.
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Quantity Theory of Money
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The theory that says that the value of money is based on the amount of money in circulation, that is, the money supply.
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Real Interest
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The percent of the amount borrowed paid each year to the lender by the borrower in return for the use of the money adjusted for inflation.
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Unit of Account
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Something that is used universally in the description of money matters such as prices. The unit of account most commonly used in the US is the dollar.
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Velocity
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The speed with which a dollar bill changes hands. The higher the velocity of money, the quicker that a given piece of currency will be traded for goods and services.
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Bartering
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The trading of 1 good for another. This requires the double Coincidence of wants, a condition met when 2 individuals each have diff't goods that they other wants.
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Federal reserve
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The federal group that controls the money supply though monetary policy and fiscal policy.
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Federal Funds Interest Rate
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The discount interest rate at which the branch banks of the Fed loan money to other banks.
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Financial Intermediary
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An entity, like a bank, that works between savers and borrowers by accepting deposits and making loans.
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Fiscal Policy
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Operations by the Fed that affect the money supply including manipulation of the federal funds interest rate & the reserve requirement.
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Fractional Reserve Banking System
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A banking system wherein less than 100% of the deposits are required to be held as reserves.
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Government Bonds
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Bonds issued by the gov't & bought & sold by the Fed as a form of monetary policy to manipulate the money supply.
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Interest Rate
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The rate of interest in the form of percent of the balance due per year.
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Liabilities
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Money owed.
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Monetary Policy
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Policy used to affect the money supply employed by the Fed. In particular, this describes the open market operations of buying & selling gove't bonds.
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Money Multiplier
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The number that describes the change in the money supply given an initial deposit and a reserve requirement.
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Open Market Operations
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The purchase and sale of government bonds by the Fed in order to affect the money supply.
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Paper Balances
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Deposits that exist on paper but are not backed by physical currency.
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Principle
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The initial amount of money given as a loan.
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Reserve
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Money not given out in loans that is available for repaying depositors.
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Reserve Requirement
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The percent of total deposits required to be held back for repaying depositors. This is controlled by the Fed as a form of monetary policy.
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Treasury
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The government agency that prints, mints, and stores money.
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Opportunity Cost
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The value of any alternative that you must give up when you make a choice
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Opportunity benefit
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What is gained by making a particular choice
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microeconomics
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the branch of economics that examines the choices of individuals concerning 1 product, 1 firm, or 1 industry.
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macroeconomics
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the branch of economics that examines the behavior of the whole economy at once
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what does it mean by capital intensive?
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Is a country relying on machinery, rather than labor.
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Why would a company in the US change from labor intensive processes to capital-intensive processes?
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A company would chose a labor intensive if it is less expensive than capital intensive processes (machines). This happens in society where there is tons of labor.
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Economic System
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the combination of social and individual decision making a society uses to answer the 3 economic questions
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Budget constraints
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the mix of goods that can be purchased with a limited amount of income
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Compare the four basic types of economic systems.
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Traditional, are ecomies decided by social customs; market economies, are economiesdecided by individuals; command are by gov't; mixed econ are by a combination of markets and gov't
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Why is it important to understand economic theory?
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It will help you to make the most informed decisions possible on every economic issue you will face.
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Market Economy
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an economy in which the economic questions are decided mostly by individuals in the marketplace
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economic incentive
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the increase in personal satisfaction that may result fro some economic activity
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contraction phase business cycle
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Right now we are in an economy that is not expanding, instead its contracting
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oligarchy
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Govn't by the few, especially despotic power exercised by a small and privileged group for corrupt or selfish purposes. It's also a form of monopoly, but by more than one business.
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