ECO101: Macroeconomics Vocabulary

GDP growth rate

(GDPt - GDP(t-1) / (GDP(t-1))

Two types of Information Asymmetries

1. Adverse Selection 2. Moral Hazard

To be considered unemployed, a person needs to meet what three conditions?

1. Be part of the working-age, civilian population. 2. Not have worked in the previous week. 3. Be actively looking for work.

What is the inflation rate targetted ranges?

2 to 2.5%

targeted ranges of inflation rate

2 to 2.5%

A growth rate of more than _% is considered good

3

An unemployment below _% is considered good

4

Inflation rate

CPI this year - CPI last year / CPI last year x 100

CPI

Consumer Price Index

C in expenditure approach equation

Consumption: spending on goods and services by private industries and households

List the GDP category: Buying a digital camera

Consumption; purchasing a new good or service always counts towards GDP

Categorize each of the following individuals as employed, unemployed, or not in the labor force. A CPA working full-time at a financial firm

Employed

Categorize each of the following individuals as employed, unemployed, or not in the labor force. A student who also works 15 hours per week

Employed

GDP per capita formula

GDP/population

List the GDP category: TSA buys plastic bins for airport security

Government spending; Any consumption or investment purcahses made by the government are counted in GDP as government spending.

GDP

Gross Domestic Product- the total market value of all final goods and services produced annually in an economy

I in expenditure approach equation

Investment: spending on productive inputs, such as factories, machinery, and inventory changes.

List the GDP category: Apple makes a new batch of iPhones but doesn't sell them until next year

Investment; Counted as part of investment, as Apple is holding these tablets as part of its inventory

List the GDP category: Buying a new house

Investment; Since buying a house will provide a place to live for years into the future, it makes sense to think of it as an investment

List the GDP category: Buying a used camera on Ebay

Not Counted; As a used good, the camera does not count toward GDP, as it was already counted when new. The fees paid to eBay for selling the camera count as consumption, though

List the GDP category: Buying shares of General Motors stock

Not counted; Shares of stock are a transfer of money from one owner of the stock to another. Including stocks would cause a double-counting problem

List the GDP category: Babysitting for your neighbor

Not counted; in principle, it should be included in GDP, but such income is often not reported to the IRS so it can't be included in official statistics.

Categorize each of the following individuals as employed, unemployed, or not in the labor force. A 15-year-old working full-time in the summer.

Not in the labor force

Categorize each of the following individuals as employed, unemployed, or not in the labor force. A full-time student

Not in the labor force

Categorize each of the following individuals as employed, unemployed, or not in the labor force. A military officer serving overseas

Not in the labor force

Categorize each of the following individuals as employed, unemployed, or not in the labor force. A retired school teacher

Not in the labor force

Categorize each of the following individuals as employed, unemployed, or not in the labor force. A stay-at-home dad that does not work elsewhere

Not in the labor force

Categorize each of the following individuals as employed, unemployed, or not in the labor force. An individual that was laid off a year ago and is waiting until things get better to look for a job.

Not in the labor force

Suppose the FDIC passes a regulation that cuts the credit limit banks can offer every credit card customer by half (50%) permanently. Assuming prices are sticky in the short-run, how would this shock impact the size of the U.S economy (GDP)?

Since household's ability to borrow decreased, the economy will experience a negative demand shock. Since prices cannot adjust, GDP will decrease and firms will fire workers if firms do not want to hold excess inventory. Unemployment rates will also increase

Most common example of a derivative is a futures contract. What is a futures contract?

The buyer of a futures contract agrees to pay the seller based on the future price of some asset. Future contracts allow sellers to transfer risks relating to future prices to the contract partner.

Categorize each of the following individuals as employed, unemployed, or not in the labor force. A recent law school graduate who is looking for a job

Unemployed

Moral hazard

When the act of insuring an event increases the likelihood that the event will happen

total expenditure formula

Y = C + I + G + NX

Define all the following variables in the expenditure approach to measure GDP

Y = C + I + G +NX Y = total expenditure C = consumption I = Investment G= Government purchases NX = net exports

Assuming prices were fully flexible in the short-run (sellers can easily adjust them). How would this shock impact the size of the U.S economy (GDP)? Would the economy experience a higher unemployment rate?

a. It would remain constant. The price level would decrease instead. b. Since GDP remained constant, firms did not fire workers, so the unemployment rate did not change.

Low unemployment

around 4%; measured by the unemployment rate (percentage of people in the labor force who do not have a job). When people lack jobs, the economy is wasting a precious resource - labor, which lowers the quantity of foods and services produced

How is sustained economic growth measured

by % change in real (inflation-adjusted) gross domestic product.

Fiscal policy

changes in government spending, transfer payment, debt, and taxation

unemployment is a _________ of labor at market wage

cyclical unemployment

unemployment that responds to business cycles

cyclical unemployment

Major types of financial assets

debt and equity

AD is _________-sloping because consumption, investment, and net exports all decrease when prices ______

downward, rise

stockholder

entitled to receive a portion of a company's profits

Intersection of labor demand and labor supply curves signify

equilibrium wage

NX in expenditure approach equation

exports minus imports

Net exports (NX)

exports minus imports

stock

financial asset that represents partial ownership of a company

Derivatives

financial assets that are based on the value of some other asset

bond

form of debt where the bond issuer promises to repay the loan plus scheduled interest payments

What is Consumer Price Index

index that allows us to compare how the prices of products and services households usually purchase are moving over time.

coupons

interest payments on bonds

Price in the market for loanable funds is the

interest rate

market acts as an _____________ between savers and borrowers

intermediary

Savings equal _____________ in a closed economy

investment

Monetary policy

involves managing the money supply, financial markets, and interest rates

loan

issued when a lender provides funds to borrower in exchange for future repayment of the amount loaned plus INTEREST

loans are generally ______ risky and _____ rewarding than buying a stock

less, less

the market provides the benefits of _________ and helps savers and borrowers diversify ____

liquidity, risk

Monetary policy

managing the economy by altering the supply of money and interest rates

Fiscal policy

managing the economy by the use of tax and spending laws

Loans

monetary contracts between a borrower and lender

Returns on equity are greater than returns on debt because stocks are

more risky

What is a good growth rate for sustained economic growth

more than 3%

Government spending and tax cuts have a ________ effect on AD

multiplier

AD shows the relationship between ________ prices and ____ demand in the economy

overall, total

divident

payment made periodically to all shareholders of a company

Low inflation

small sustained increase in the overall level of prices. This is because of the high costs attached to experiencing very high or negative inflation (deflation)

G in expenditure approach equation

spending on goods and services by all levels of the government

Government purchases (G)

spending on goods and services by all levels of the government.

Consumption

spending on goods and services by private individuals and households

Investment

spending on productive inputs, such as factories, machinery, and inventory changes

Efficient-market hypothesis

states that market prices incorporate all available information, therefore accurately predicting stock returns is impossible

Inventory

stock of foods that a company produced now but does not sell immediately

Inventory

stock of goods that a company produces now but does not sell immediately.

Adverse selection

the problem of incomplete information - of choosing alternatives without fully knowing the details of available options

Sustained Economic growth

ultimately determines the prevailing standard of living in a country.

A market wage above the equilibrium causes

unemployment

financial market

where people trade future claims on funds or goods