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Exam 3 Terms
| Term | Definition |
|---|---|
| business cycle | the economy's relatively short-term movement in and out of recession |
| depreciation | the process by which capital ages over time and therefore loses its value |
| depression | an especially lengthy and deep decline in output |
| double counting | a potential mistake to avoid 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 |
| exchange rate | the price of one currency in terms of another currency |
| final good and service | output used directly for consumption, investment, government, and trade purposes; contrast with “intermediate good” |
| GDP per capita | GDP divided by the population |
| 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: wages, profits, rent, and profit income |
| net national product (NNP) | GDP minus depreciation |
| nominal value | the economic statistic actually announced at that time, not adjusted for inflation; contrast with real value |
| nondurable good | short-lived good like food and clothing |
| peak | during the business cycle, the highest point of output before a recession begins |
| real value | an economic statistic after it has been adjusted for inflation; contrast with nominal value |
| recession | a significant decline in national output |
| service | product which is intangible (in contrast to goods) such as entertainment, healthcare, or education |
| standard of living | all elements that affect people’s happiness, whether people buy or sell these elements in the market or not |
| 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 it calculates them as imports –exports |
| trade surplus | exists when a nation's exports exceed its imports and it calculates them as exports – imports |
| trough | during the business cycle, the lowest point of output in a recession, before a recovery begins |
| 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 |
| discouraged workers | those who have stopped looking for employment due to the lack of suitable positions available |
| efficiency wage theory | the theory that the productivity of workers, either individually or as a group, will increase if the employer pays them more |
| frictional unemployment | unemployment that occurs as workers move between jobs |
| 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 |
| 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 |
| 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 |
| 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” |
| relative wage coordination argument | across-the-board wage cuts are hard for an economy to implement, and workers fight against them |
| structural unemployment | unemployment that occurs because individuals lack skills valued by employers |
| 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 |
| adjustable-rate mortgage (ARM) | a loan a borrower uses to purchase a home in which the interest rate varies with market interest rates |
| base year | arbitrary year whose value as an index number economists define 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 |
| consumer price index (CPI) | a measure of inflation that U.S. government statisticians calculate based on the price level from a fixed basket of goods and services that represents the average consumer's purchases |
| 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 |
| cost of living adjustments (COLAs) | a contractual provision that wage increases will keep up with inflation |
| deflation | negative inflation; most prices in the economy are falling |
| 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 GDP components |
| hyperinflation | an outburst of high inflation that often occurs (although not exclusively) when economies shift from a controlled economy to a market-oriented economy |
| 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 |
| indexed | a price, wage, or interest rate is adjusted automatically for inflation |
| inflation | a general and ongoing rise in price levels in an economy |
| 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 account for 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 considerably |
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tacobatman
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