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ECON 102

Exam I

QuestionAnswer
Depreciation the process by which capital ages over time and therefore loses its value
double counting a potential mistake to be avoided in measuring GDP, in which output is counted more than once as it travels through the stages of production
durable good long-lasting good like a car or a refrigerator
final good and service output used directly for consumption, investment, government, and trade purposes; contrast with “intermediate good”
gross domestic product (GDP) the value of the output of all goods and services produced within a country in a year
gross national product (GNP) includes what is produced domestically and what is produced by domestic labor and business abroad in a year
intermediate good output provided to other businesses at an intermediate stage of production, not for final users; contrast with “final good and service”
inventory good that has been produced, but not yet been sold
national income includes all income earned
net national product (NNP) GDP minus depreciation
nondurable good short-lived good like food and clothing
service product which is intangible (in contrast to goods) such as entertainment, healthcare, or education
structure building used as residence, factory, office building, retail store, or for other purposes
trade balance gap between exports and imports
trade deficit exists when a nation's imports exceed its exports and is calculated as imports –exports
trade surplus exists when a nation's exports exceed its imports and is calculated as exports – imports
nominal value the economic statistic actually announced at that time, not adjusted for inflation; contrast with real value
real value an economic statistic after it has been adjusted for inflation; contrast with nominal value
business cycle the relatively short-term movement of the economy in and out of recession
depression an especially lengthy and deep decline in output
peak during the business cycle, the highest point of output before a recession begins
recession a significant decline in national output
trough during the business cycle, the lowest point of output in a recession, before a recovery begins
exchange rate the price of one currency in terms of another currency
GDP per capita GDP divided by the population
standard of living all elements that affect people’s happiness, whether these elements are bought and sold in the market or not
discouraged workers those who have stopped looking for employment due to the lack of suitable positions available
labor force participation rate this is the percentage of adults in an economy who are either employed or who are unemployed and looking for a job
out of the labor force those who are not working and not looking for work—whether they want employment or not; also termed “not in the labor force”
underemployed individuals who are employed in a job that is below their skills
unemployment rate the percentage of adults who are in the labor force and thus seeking jobs, but who do not have jobs
adverse selection of wage cuts argument if employers reduce wages for all workers, the best will leave
cyclical unemployment unemployment closely tied to the business cycle, like higher unemployment during a recession
efficiency wage theory the theory that the productivity of workers, either individually or as a group, will increase if they are paid more
implicit contract an unwritten agreement in the labor market that the employer will try to keep wages from falling when the economy is weak or the business is having trouble, and the employee will not expect huge salary increases when the economy or the business is strong
insider-outsider model those already working for the firm are “insiders” who know the procedures; the other workers are “outsiders” who are recent or prospective hires
relative wage coordination argument across-the-board wage cuts are hard for an economy to implement, and workers fight against them
frictional unemployment unemployment that occurs as workers move between jobs
natural rate of unemployment the unemployment rate that would exist in a growing and healthy economy from the combination of economic, social, and political factors that exist at a given time
structural unemployment unemployment that occurs because individuals lack skills valued by employers
base year arbitrary year whose value as an index number is defined as 100; inflation from the base year to other years can easily be seen by comparing the index number in the other year to the index number in the base year
basket of goods and services a hypothetical group of different items, with specified quantities of each one meant to represent a “typical” set of consumer purchases, used as a basis for calculating how the price level changes over time
index number a unit-free number derived from the price level over a number of years, which makes computing inflation rates easier, since the index number has values around 100
inflation a general and ongoing rise in the level of prices in an economy
Consumer Price Index (CPI) a measure of inflation calculated by U.S. government statisticians based on the price level from a fixed basket of goods and services that represents the purchases of the average consumer
core inflation index a measure of inflation typically calculated by taking the CPI and excluding volatile economic variables such as food and energy prices to better measure the underlying and persistent trend in long-term prices
Employment Cost Index a measure of inflation based on wages paid in the labor market
GDP deflator a measure of inflation based on the prices of all the components of GDP
International Price Index a measure of inflation based on the prices of merchandise that is exported or imported
Producer Price Index (PPI) a measure of inflation based on prices paid for supplies and inputs by producers of goods and services
quality/new goods bias inflation calculated using a fixed basket of goods over time tends to overstate the true rise in cost of living, because it does not take into account improvements in the quality of existing goods or the invention of new goods
substitution bias an inflation rate calculated using a fixed basket of goods over time tends to overstate the true rise in the cost of living, because it does not take into account that the person can substitute away from goods whose prices rise by a lot
deflation negative inflation; most prices in the economy are falling
hyperinflation an outburst of high inflation that is often seen (although not exclusively) when economies shift from a controlled economy to a market-oriented economy
adjustable-rate mortgage (ARM) a loan used to purchase a home in which the interest rate varies with market interest rates
cost-of-living adjustments (COLAs) a contractual provision that wage increases will keep up with inflation
indexed a price, wage, or interest rate is adjusted automatically for inflation
Created by: EdL
 

 



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