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Economics Terms 2
| Term | Definition |
|---|---|
| Gross Domestic Product (GDP) | The market value of all final goods and services produced within a country during a specific period |
| Per Capita GDP | GDP per person. |
| Economic Growth | Measured as the percentage change in real per capita GDP. |
| Inflation | The growth in the overall level of prices in an economy. |
| Recession | A short-term economic downturn |
| The Great Recession | A U.S. recession lasting from December 2007 to June 2009. |
| Business Cycle | A short-run fluctuation in economic activity. |
| Economic Expansion | A phase of the business cycle during which economic activity is increasing |
| Economic Contraction | A phase of the business cycle during which economic activity is decreasing |
| Services | Services are outputs that provide benefits without producing a tangible product. |
| Intermediate Goods | Goods that firms repackage or bundle with other goods for sale at a later stage. |
| Final Goods | Goods that are sold to final users. |
| Gross National Product (GNP) | The output produced by workers and resources owned by residents of the nation |
| Consumption | The purchase of final goods and services by households, excluding new housing |
| Investment | (In macroeconomics) Refers to private spending on tools, plant, and equipment used to produce future output |
| Government Spending | Includes spending by all levels of government on final goods and services. |
| Net Exports | Total exports of final goods and services minus total imports of final goods and services |
| Nominal GDP | GDP measured in current prices and not adjusted for inflation |
| Net Exports | Total exports of final goods and services minus total imports of final goods and services |
| Nominal GDP | GDP measured in current prices and not adjusted for inflation |
| Price Level | An index of the average prices of goods and services throughout the economy |
| GDP Deflator | A measure of the price level that is used to calculate real GDP |
| Unemployment | Occurs when a worker who is not currently is employed is searching for a job without success |
| Unemployment rate | The percentage of the labor force that is unemployed |
| Creative destruction | Occurs when the introduction of new products and technologies leads to the end of other industries and jobs |
| Structural unemployment | Unemployment caused by changes in the industrial makeup (structure) of the economy |
| Frictional unemployment | Unemployment caused by delays in matching available jobs and workers |
| Unemployment insurance | Also known as federal jobless benefits, is a government program that reduces the hardship of joblessness by guaranteeing that unemployed workers receive a percentage of their former income while unemployed |
| Natural State of Unemployment | The typical unemployment rate that occurs when the economy is growing normally. |
| Full-employment output | Also called potential output or potential GDP, is the output level produced in an economy when the unemployment rate is equal to the natural rate |
| Labor force | Includes people who are already employed or actively seeking work and are part of the work-eligible population (civilian, institutionalized, and age 16+) |
| Discouraged workers | Those who are not worker, have looked for a job in past 12 months and are willing to work, but have not sought employment in the past 4 weeks. |
| Underemployed workers | Those who have part-time jobs but who would prefer to work full-time |
| Labor force participation rate | The percentage of the work-eligible population that is in the labor force |
| Non-institutional population | People who are not in the military or confined in prison/hospitals/facilities and are age 16+ |
| Deflation | Occurs when overall prices fall. |
| Hyperinflation | An extremely high rate of inflation |
| Consumer price index (CPI) | A measure of the price level based on the consumption patterns of a typical consumer. CPI reflects overall rise in prices for consumers on average. It is used to compute inflation. |
| Chained CPI | A measure of the CPI in which the typical consumer’s “basket” of goods and services is updated monthly |
| Shoe-leather costs | The resources that are wasted when people change their behavior to avoid holding money |
| Money illusion | Occurs when people interpret nominal changes in wages or prices as real changes |
| Nominal Wage | A worker’s wage expressed in current dollars |
| Real Wage | The nominal wage adjusted for changes in the price level |
| Menu costs | The costs of changing prices |
| Output | The product that the firm creates |
| Capital gains taxes | Taxes on the gains realized by selling an asset for more than its purchasing price |
| Equation of Exchange | Specifies the long-run relationship between the money supply, the prices level, real GDP, and the velocity of money |
| The Velocity of Money | The number of times a unit of money exchanges hands in a given year |
| Financial Market | Where firms and governments obtain funds (financing) for their operations. These funds primarily come from household savings across the economy |
| Loanable Funds market | Where saves supply funds for loans to borrowers |
| Interest Rate | A price of loanable funds, quoted as a percentage of the original loan amount |
| Real Interest Rate | The interest rate that is corrected for inflation. The rate of return in terms of real purchasing power |
| Nominal Interest Rate | The interest rate before it is corrected for inflation. It is the stated interest rate. |
| Fisher Equation | The real interest rate equals the nominal interest rate minus the inflation rate |
| Time Preferences | Refers to the fact that people prefer to receive good and services sooner rather than later |
| Consumption smoothing | Occurs when people borrow and save to smooth consumption over their lifetime |
| Dissaving | Occurs when people withdraw funds from their previously accumulated savings |
| Savings Rate | Personal saving as a proportion of disposable (after-tax) income |
| Investor Confidence | A measure of what firms expect for future economic activity |
| Financial Intermediaries | Firms that help to channel funds from savers to borrowers |
| Banks | Private firms that accept deposits and extend loans |
| Indirect Finance | Occurs when savers deposit funds into banks, which then loan these funds to borrowers |
| Direct Finance | Occurs when borrowers go directly to savers for funds |
| Security | Tradable contract that entitles an owner to certain rights |
| Bond | A security that represents a debt to be paid |
| Maturity Date | The date on which the loan repayment is due |
| Security | Tradable contract that entitles an owner to certain rights |
| Bond | A security that represents a debt to be paid |
| Maturity Date | The date on which the loan repayment is due |
| Face Value or Par Value | The bond’s value at maturity - the amount due at repayment |
| Default risk | The risk that the borrower will not pay the face value of a bond on the maturity date |
| Stocks | Ownership shares in a firm |
| Secondary Markets | Markets in which securities are traded after their first sale |
| Treasury Securities | The bonds sold by the U.S. Government to pay for the national debt |
| Securitization | The creation of a new security by combining otherwise separate loan agreements |
| Economic Growth | Measured as the percentage change in real per capita GDP. |
| The Rule of 70 | States that if the annual growth rate of a variable is x%, the size of that variable doubles approximately every 70 / x years |
| Resources or Factors of production | Inputs used to produce goods and services |
| Human Capital | The resource represented by the quantity, knowledge, and skills of the workers in an economy |
| Technology | The knowledge that is available for use in production |
| Technological Advancement | Introduces new techniques or methods so that firms can produce more valuable output per unit of input |
| Institution | A significant practice, relationship, or organization in a society. Institutions are the official and unofficial conditions that shape the environment in which decisions are made |
| Private property rights | The rights of individuals to own property, to use it in production and to own the resulting output |
Created by:
AlanMGM
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