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