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Economics Terms 2

TermDefinition
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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