macro

expansion

-a period in which real GDP, income, and employment rise -At some point, the economy again approaches full employment -If spending then expands faster than production capacity, the prices of nearly all goods and services will rise, thereby generating a bout of inflation

intermediate good

-a product used to produce a final good -products that are made during a manufacturing process but that are also used in production of other goods -salt, sugar, wood, etc.

peak

-business activity has reached a temporary maximum -Here the economy is near or at full employment, and the level of real output is at or very close to the economy's capacity -The price level is likely to rise during this phase

businesses

-commercial establishments that attempt to earn profits for their owners by offering goods and services for sale -fall into three main categories: a sole proprietorship, in a partnership, a corporation

not in labor force

-composed of noninstitutionalized people 26 years of age or older who are neither employed nor seeking work. -This includes stay-at-home parents, full-time students, and retirees

unemployed

-consists of every noninstitutionalized person age 16 or older who is not employed but who wants to work and is actively seeking employment -one needs to want a job and be actively seeking,

employed

-consists of noninstitutionalized people age 16 or older who have jobs -These people who both want to work and have a job.

labor force

-consists of the latter two groups - the employed plus the unemployed -includes anyone who has a job plus anyone lacking a job who is actively seeking employment

positive economics

-focuses on facts and cause-and-effect relationships -It avoids value judgements and tries to establish scientific statements about economic behavior -Such scientific-based analysis is critical to goof policy analysis -concerns what is

product market

-households purchased the goods and services produced by businesses -Households use the income they receive from the sale of resources to buy goods and services -The money that they spend on goods and services flows to a business as revenue

resource market

-households sell resources to businesses -The household cell resources to generate income and the businesses buy resources to produce goods and services

circular flow

-illustrates those flows (goods and services, resources, in money) for a simplified economy in which there is no government -figure groups the economies decision-makers into business and households and additionally we divide the economy's markets into the resource market and the product market -model illustrates how resources flow from households to businesses and how payments for those resources flow from businesses to households

normative economics

-incorporates value judgments about what the economy should be like or what the policy actions should be recommended -underlies expressions of support for particular economic policies -embodies subjective feelings about what ought to be -"ought" -"should"

investment spending

-money spent on capital goods -production of capital, goods, or services -machinery, land, production inputs, infrastructure, etc.

households

-one or more persons occupying a housing unit -buy the goods and services that businesses make available in the product market. households obtain the income needed to buy those products by selling resources in the resource market

trough

-output and employment "bottom out" at their lowest levels -may either be short-lived or quite long.

Inflation

-rise in the general level of prices -each dollar of the income buys fewer goods and services than before. -reduces the "purchasing power" of money. -does not mean that all prices are rising. Even during periods of rapid, some prices may be relatively constant, while others may even fall.

private transfer payments

-the allowance money that parents give children or the cash gifts given during the holidays -They produce no output -They simply transfer funds from one private individual to another and consequently do not enter into GDP.

value added

-the contribution of the factors of production (capital and labor) to raising the value of the product and increasing the income of those who own said factors -shared between capital and labor

GDP: Gross domestic product

-the dollar value of all financial goods and services produced within a country's borders during a specific period of time, typically a year or a quarter -only counts the value of final goods and services, which is products that are purchased by their end (final) user -excludes intermediate goods and services that are purchased for resale or as inputs used to produce other products ex= loaf of bread purchased by a family because the family is the end user

scarcity

-the economic resources to make goods and services are in limited supply -this restricts options and demands choices, because we "can't have it all" we must decide what we will have and what we must forgo

the consumer price index (CPI)

-the main measure of inflation in the US -government uses this to report inflation rates each month and each year -uses reports to adjust the social security benefits and income tax brackets for inflation -reports the price of a "market basket" of some 300 consumer goods and services that are purchased by typical urban consumers.

unemployment rate

-the percentage of the labor force that is unemployed -unemployed / labor force x 100

public transfer payments

-these are the Social Security payments, welfare payments, and veterans' payments that the government makes directly to households -Because the recipients contribute nothing to current production in return, including payments in GDP would overstate the years output.

consumption spending

-total money spent on final goods and services by individuals and households for personal use and enjoyment in an economy -private purchases of durable goods, nondurable goods, and services

a partnership

-two or more individuals agree to own and operate a business together -They pool their financial resources and business skills to operate the business, and share any profits or losses that the business may generate ex= law firms and dental practices

cyclical unemployment

-unemployment that is caused by a decline in total spending -begins in the recession phase of the business cycle -As the demand for goods and services decreases, employment falls and unemployment rises. -results from insufficient demands for goods and services that is exacerbated by the downward stickiness of wages in the economy.

structural unemployment

-unemployment that results because the number of jobs available in some labor markets is insufficient to provide a job for everyone who wants one -occurs because the composition of the labor force does not respond immediately or completely to the new structure of job opportunities. -Workers whose skills and experience have become obsolete or unneeded thus fine that they have no marketable talents. -They are structurally unemployed until they develop skills that employers want. -workers find it hard to obtain new jobs without retaining or additional education period -long term and serious

frictional unemployment

-workers who are unemployed as they actively search for a job -"between jobs" -inevitable -short term

planned investment

The amounts that business firms collectively intend to invest at each level of GDP

a corporation

an independent legal entity that can-on its own behalf-acquire resources, own assets, produce and sell products, in curd debts, extend credit, sue and be sued, and otherwise engage in any legal business activity

GDP calculation

can be calculated as either the sum of all money spent purchasing final goods and services (expenditures approach) or as the sum of all the incomes earned by providing the resources that went into producing those final goods and services (income approach). -may be calculated by summing total expenditures on all final output or by summing the income derived from the production on that output -C + Ig + G + Xn

Rule of 70 Calculation

divide the number 70 by the annual percentage growth rate, Inflation is the growth rate of the price level.

how can nominal GDP be transformed into real GDP

dividing the nominal GDP by the GDP price index expressed in hundredths

Rule of 70

tells us that we can find the umber of years it will take for some measure to double, assuming that it grows at a constant annual percentage rate

natural rate of unemployment (NRU)

the economy is said to be producing its potential output, the real GDP that occurs when the labor force and other inputs are "fully employed"

multiplier effect

the increase in final income arising from any new injection of spending

nominal income

the number of dollars received as wages, rent, interest, or profit

labor force participation rate calculation

the sum of all workers who are employed or actively seeking employment / the total non-institutionalized, civilian working-age population

sole proprietorship

-a business owned and managed by a single person -owner may work alone or have employees ex= a woman who runs her own tree cutting business and an independent accountant who, with two assistants, helps his clients with their taxes.

real GDP

A GDP that has been deflated or inflated to reflect changes in the price level

business cycle

Individual cycles (one "up" followed by one "down") vary substantially in duration and intensity

nominal GDP

a GDP based on the prices the prevailed when output was produced

labor force participation rate

a measure of an economy's active workforce

recession

a period of decline in total output, income, and employment that lasts at least six months.

Types of unemployment

frictional, structural, cyclical

real income

measures the amount of goods and services that nominal income can buy; it is the purchasing power of nominal income, or income adjusted for inflation

real income calculation

nominal income/price index (in hundredths)

4 phases of the business cycle

peak, recession, trough, expansion

CPI calculation

price of the most recent market basket in the particular year/price estimate of the market backet in 1982-1984 X 100