Exam 2 Study Guide

Governments borrow money by

issuing bonds, which are then purchased by individuals and investors using their savings

Land and Natural Resources (denoted as N) include:

land and any raw resources that come from land, such as mineral deposits, oil, natural gas, and water

CPI formula

(Cost in Period / Cost in Base Period) x 100 For example, assume that the market basket of goods cost $5,000 in 2011 and that the same basket of goods now costs $5,750. The CPI for today, using 2011 for the base year, is 115.0 = ($5,750 ÷ $5,000) × 100

deflation

A decline in overall prices throughout the economy. This is the opposite of inflation.

money multiplier

A formula that measures the potential or maximum amount the money supply can increase (or decrease) when a dollar of new deposits enters (exits) the system and is defined as 1 divided by the reserve requirement.

inflation

A general rise in prices throughout the economy. It is a measure of changes in the cost of living.

The leakage-adjusted money multiplier takes

leakages into account and provides a more realistic estimate of the money multiplier in the economy

The national income and product accounts (NIPA)

let economists judge our nation's economic performance, compare U.S. income and output to that of other nations, and track the economy's condition over the course of the business cycle.

The Federal Reserve serves as

the lender of last resort, stepping in to loan money to banks that are facing cash emergency shortages, or other financial difficulties

Production function measures

the output that is produced using various combinations of inputs and a fixed level of technology.

money

Anything that is accepted in exchange for goods and services or for the payment of debt.

Factors that shift the supply curve of loanable funds include:

1. Changes in economic outlook 2. incentives to save 3. income or asset prices 4. government deficits can influence savings patterns

Typical business cycle:

1. Peak 2. Recession or Downturn 3. Through 4. Recovery 5. Peak

Consequences of Inflation

1. People on fixed incomes are harmed by inflation because the purchasing power of their income declines. If people live long enough on fixed incomes, inflation can reduce them from living comfortably to living in poverty. 2. Creditors, meanwhile, are harmed by inflation because both the principal on loans and interest payments are usually fixed. Inflation reduces the real value of the payments they receive, while the value of the principal declines in real terms. This means that debtors benefit from inflation; 3. unexpected inflation leads to faulty signals, which can reduce consumer and producer welfare. 4. when inflation becomes rampant, individuals and firms expend resources to protect themselves from the harmful effects of rapidly rising prices, an effect that is especially prevalent in cases of hyperinflation.

Three primary functions of money are:

1. as a medium of exchange 2. as a measure of value (unit of account) 3. as a store of value

In order to increase earnings on savings, savers must either

1. choose financial assets with lower liquidity 2. choose assets that carry a higher level of risk

Money Multiplier Formula

1/reserve requirement

Yield formula

= interest payment/price of the bond

Price of bond formula

= interest payment/yield

Financial system

A complex set of institutions, including banks, bond markets, and stock markets, that allocate scarce resources (financial capital) from savers to borrowers.

GDP per capita

A country's GDP divided by its population. GDP per capita provides a useful measure of a country's relative standard of living.

gross domestic product (GDP)

A measure of the economy's total output; it is the most widely reported value in the national income and product accounts (NIPA) and is equal to the total market value of all final goods and services produced by resources in a given year.

double-dip recession

A recession that begins after only a short period of economic recovery from the previous recession.

Leakages

A reduction in the amount of money that is used for lending that reduces the money multiplier. It is caused by banks choosing to hold excess reserves and from individuals, businesses, and foreigners choosing to hold more cash.

disinflation

A reduction in the rate of inflation. An economy experiencing disinflation still faces inflation, but at a declining rate.

Pensions

A retirement program into which an employer pays a monthly amount to retired employees until they die.

solvency crisis

A situation when a bank's liabilities exceed its assets.

national income

All income, including wages, salaries and benefits, profits (for sole proprietors, partnerships, and corporations), rental income, and interest.

The feds tools include:

Altering reserve requirements, changing discount rate, and open market operations (buying and selling government securities)

Hyperinflation

An extremely high rate of inflation; above 100% per year.

Income or Asset Prices

As income rise, people generally save a larger proportion of their income, all else equal.

GDP per _____ is a country's GDP divided by its population

Capita

catch-up effect

Countries with smaller starting levels of capital experience larger benefits from increased capital, allowing these countries to grow faster than countries with abundant capital

discouraged workers

Discouraged workers are the portion of marginally attached workers who have given up actively looking for work and, as a result, are not counted as unemployed.

The Household Survey

Every month the Census Bureau, as part of the Current Population Survey (CPS), contacts roughly 60,000 households to determine the economic activity of people.

net exports

Exports minus imports for the current period. Exports include all goods and services we sell abroad, while imports include all goods and services we buy from other countries.

Financial intermediaries

Financial firms (banks, mutual funds, insurance companies, etc.) that acquire funds from savers and then lend these funds to borrowers (consumers, firms, and governments).

Diversifying assets to reduce risk

Firms need funds for long-term investments, but savers want access to their money a moments notice and would want their funds invested in a number of diversified projects to reduce risk.

Summing Aggregate Expenditures

GDP = C + I + G + (X - M) The four categories are commonly abbreviated as C (consumption), I (investment), G (government spending), and X - M (net exports; exports minus imports).

To address the issue of differences in the cost of living between countries, organizations that report GDP statistics across countries, such as the World Bank's World Development Indicators, also report:

GDP statistics based on purchasing-power-parity-adjusted measures, or GDP-PPP.

To address the issue of changing prices, the U.S. Bureau of Economic Analysis reports:

GDP statistics in both nominal terms as well as in real terms.

personal consumption expenditures

Goods and services purchased by residents of the United States, whether individuals or businesses; they include durable goods, nondurable goods, and services.

incentives to save

Governments and companies offer various incentives to individuals to save, such as retirement contribution plans and other tax incentives.

Productivity

How effectively inputs are converted into outputs. Labor productivity is the ratio of the output of goods and services to the labor hours devoted to the production of that output. Productivity and living standards are closely related.

liquidity

How quickly, easily, and reliably an asset can be converted into cash.

Productivity is a

Key driver of wages and income

The capacity to produce goods and services increase leading to:

Long-run Growth

The monetary aggregates the Fed uses most frequently are

M1, the narrowest measure of money, and M2, a broader measure. An even broader measure called M3 was published until 2006 when the Fed decided the additional benefit of this measure was not worth the costs of collecting the data.

fiat money

Money without intrinsic value but nonetheless accepted as money because the government has decreed it to be money.

Net Interest

Net interest is the interest paid by businesses less the interest they receive, from this country and abroad, and is 3.8% of GDP. Interest expense is the payment for the use of capital. Interest income includes payments from home mortgages, home improvement loans, and home equity loans.

Equation for New Salary

New Salary = Old Salary x (current year index/previous year index)

The Payroll Survey

Officially called the Current Employment Statistics (CES) Survey, the payroll or establishment survey focuses on approximately 146,000 companies and government agencies that are asked how many employees they currently have. If jobs are cut, this survey will immediately show a decrease in the number of employees.

Weekly Jobs Report

One report that has gained increasing attention is the Unemployment Insurance Weekly Claims Report, more commonly referred to as the Weekly Jobs Report, released by the U.S. Department of Labor each Thursday. The Weekly Jobs Report contains an estimate of the number of persons filing for unemployment benefits for the first time, and is used as a way to estimate trends in layoffs and in hiring.

Output formula

Output = A * f(L,K,H,N)

Output per worker formula

Output per worker = A * f(L/L, K/L, H/L, N/L)

Employed

People are counted as employed if they have done any work at all for pay or profit during the survey week. Regular full-time work, part-time work, and temporary work are all included.

Unemployed

People are counted as unemployed if they do not have a job, but are available for work and have been actively seeking work for the previous four weeks.

excess reserves

Reserves held by banks above the legally required amount.

yield curve

Shows the relationship between the interest rate earned on a bond (measured on the vertical axis) and the length of time until the bond's maturity date (shown on the horizontal axis).

What event was a major influence on the development of macroeconomics? a) The Great Depression b) Employment Act of 1946 c) The U.S. Entry into World War II d) The Establishment of the Federal Reserve System in the United States

The Great Depression

compounding

The ability of growth to build on previous growth. It allows variables such as income and GDP (as well as debt) to increase significantly over time.

store of value

The function that enables people to save the money they earn today and use it to buy the goods and services they want tomorrow.

Federal Funds Rate

The interest rate financial institutions charge each other for overnight loans used as reserves.

Reserve requirements

The required ratio of funds that commercial banks and other depository institutions must hold in reserve against deposits.

reserve requirement

The required ratio of funds that commercial banks and other depository institutions must hold in reserve against deposits.

Labor Force

The total number of those employed and unemployed. The unemployment rate is the number of unemployed divided by the labor force, expressed as a percent.

real GDP

The total value of final goods and services produced in a country in a year measured using prices in a base year.

structural unemployment

Unemployment caused by changes in the structure of consumer demands or technology. It means that demand for some products declines and the skills of this industry's workers often become obsolete as well. This results in an extended bout of unemployment while new skills are developed.

Frictional unemployment

Unemployment resulting from workers who voluntarily quit their jobs to search for better positions, or are moving to new jobs but may still take several days or weeks before they can report to their new employers.

economic growth

Usually measured by the annual percentage change in real GDP, reflecting an improvement in the standard of living.

underemployed workers

Workers who are forced to take jobs that do not fully utilize their education, background, or skills. Underemployed workers often hold part-time jobs.

%Change in Price Formula

[(CPI in current Year/CPI in Original Year) x 100] - 100 For example, if the CPI in 2016 was 238.6 and the CPI in 2011 was 224.9, the average change in prices over this five-year period was 6.1% = [(238.6/224.9) × 100] − 100

A bond is

a contract between a seller (the company or government issuing the bond) and a buyer that determines the following: 1. coupon rate of the bond 2. maturity date of the bond 3. face value of the bond

The index of economic freedom measures

a country's infrastructure, which supports economic growth

A shift in the supply curve of loanable funds occurs when

a factor increases or decreases the country's willingness to save (either by private individuals or the public government) at any given interest rate.

Short -run growth involves

a fixed capacity

An increase in a country's real GDP generally translates into

a higher standard of living for most of its residents

The market for loanable funds is

a model that describes the financial market for saving and investment.

National Bureau of Economic Research (NBER)

a nonprofit research organization founded in 1920. Business cycles are officially dated by a committee of economist assigned by the NBER

A T-account is

a simplified bank balance sheet showing assets (money banks lay claim to) and liabilities (money banks owe).

The Rule of 70 provides:

an easy way to approximate the number of years required for value to double

Long-run growth occurs when

an economy finds new resources or improved ways to use existing resources

Hyperinflation is usually caused by

an excess of government spending over tax revenues (extremely high deficits) coupled with the printing of money to finance these deficits.

Corporate Profits

are defined as the income that flows to corporations, adjusted for inventory valuation and capital consumption allowances.

The Fed Board of Governors

consist of seven members who are appointed by the president and confirmed by the senate. Board members serve terms of 14 years, after which they cannot be reappointed.

Short-run growth is common when

countries are recovering from economic downturn or when obstacles preventing resources from being fully used are loosened.

Escalator clause is

designed to adjust payments or wages for changes in the price level.

The official unemployment rate statistics:

do not account for underemployed, discouraged, and other marginally attached workers

Peaks are followed by:

downturns or recessions.

diminishing returns to capital

each additional unit of capital provides a smaller increase in output than the previous unit of capital

Price Indexes are used for two primary purposes:

escalation and deflation

Long-Run Growth involves

expanding capacity

U.S. business cycles since 1950 have shown: a)expansions to be shorter than recessions. b)expansions to be just as lengthy as recessions. c)stable unemployment rates. d)expansions to be longer than recessions.

expansions to be longer than recessions.

efficiency wages

give employees an incentive to work hard and remain with their present employers, because at other jobs they could earn only market wages. These higher wages, however, can also prevent employers from hiring additional workers, thus contributing to unemployment.

National Activity Index

he National Activity Index, developed by the Federal Reserve Bank of Chicago, is a weighted average of 85 indicators of national economic activity. These indicators are drawn from a huge swath of economic activity including production, income, employment, unemployment, hours worked, personal consumption, housing, sales, orders, and inventories.

double coincidence of wants occurs if

in a barter economy, I find someone who not only has something I want, but who also wants something I have.

Business cycles vary

in intensity, duration, and speed

Demand for loanable funds ___________when technology advances

increases

Th fed's policies, as with fiscal policy, are subject to

information, recognition, decision, and implementation lag. Unlike fiscal policy, the fed's decision lags tend to be shorter because fed policies are not subjected to lengthy legislative processes.

Problems in Measuring Consumer Prices

it measures only private goods and services; public goods (such as national defense spending) are excluded. Other background environmental factors, meanwhile, are held constant. The current CPI, for instance, does not take into account such issues as the state of the environment, homeland security, life expectancy, crime rates, climate change, or other conditions affecting the quality of life. For these reasons alone, the CPI will probably never be a true cost-of-living index.

An escalator agreement :

modifies future payments, usually increasing them, to take the effects of inflation into account

GDP does not include what?

nonmarket activities or the informal economy

Commodity money consist

of objects and materials (such as gold, silver, and trinkets) that have value in and of itself.

The demand for loanable funds comes from

people who want to purchase goods and services, such as taking out a loan to go to college, taking out a mortgage on a house, or who, as entrepreneurs, want to start or expand a business. demand slopes downward because when interest rate is high fewer projects will have a rate of return high enough to justify the investment.

The supply of funds to the loanable funds market is

positively related to the interest rate. higher interest rates = more savings upward-sloping supply curve

Real GDP measures output using

prices from a base year

CPI still tends to overstate inflation for three key reasons:

product substitution, quality improvements, and the introduction of new products.

Less tangible infrastructure elements include

protection of property rights, enforcement of contracts, and a stable financial system

Government has an important role in promoting economic growth by

providing physical and human capital, ensuring a stable legal system and financial market, and promoting free and competitive markets

Compensation of Employees

refers to payments for work done, including wages, salaries, and benefits.

Proprietors' Income

represents the current income of all sole proprietorships, partnerships, and tax-exempt cooperatives in the country. It includes the imputed (estimated) rental income of owner-occupied farmhouses. Proprietors' income is adjusted by a capital consumption allowance to account for depreciating equipment (equipment that is used up while producing goods and services).

Financial assets include

savings and checking accounts, certificates of deposit (CDs), bonds, stocks, and mutual funds

Full unemployment is typically defined as

that level at which cyclical unemployment is zero or that level associated with a low nonaccelerating inflation rate

A peak in the business cycle usually means :

that the economy is operating at its capacity.

The federal reserve system

the central bank of the United States

GDP-PPP takes into account

the cost of living in a country

Information costs are

the expenses associated with gathering information on individual borrowers and evaluating their creditworthiness.

A business cycle is: a) the periodic fluctuation of economic activity b) the engine of economic growth c) identical to the consumption life cycle d) a period lasting about 50 years

the periodic fluctuation of economic activity

Output per person adjust

the production function for changes in population growth in a country

Production function is

the relationship between the amount of inputs used in production and the amount of output produced

Relationship Between Employment and the Unemployment Rate

the unemployment rate is not perfectly correlated with employment numbers

Transaction costs are

those associated with finding, selecting, and negotiating contracts between individual savers and borrowers.

The fed uses open market operations

to keep the federal funds rate at target levels

Small Differences in growth rates:

translates into large differences in output and income over time.

Suppose an economy has historically grown at a rate of 1.25%. Economic activity decreased every quarter over the past year, but the decline stopped this quarter. The economy is expected to grow at a rate of 1.4% in the near future, but monetary authorities are concerned that inflation may increase. This economy is probably in the _____ stage of the business cycle. a) recovery b)expansion c)contraction d)trough

trough

Government deficit

when a government runs a budget surplus, additional loanable funds are provided to the market, increasing the supply of loanable funds. However, governments often incur budget deficits, which means the government becomes a borrower instead of a saver.

Short-run growth occurs

when an economy makes use of existing but underutilized resources.

Indicators in the LEI

· Average weekly hours, manufacturing · Average weekly initial claims for unemployment insurance · Manufacturers' new orders, consumer goods and materials · Index of supplier deliveries—vendor performance · Manufacturers' new orders, nondefense capital goods · Building permits, new private housing units · Stock prices, 500 common stocks · Money supply, M2 · Interest rate spread, ten-year Treasury bonds less federal funds · Index of consumer expectations

M2 equals

A broader definition of money that includes "near monies" that are not as liquid as cash, including deposits in savings accounts, money market accounts, and money market mutual fund accounts. ▪ M1 + Savings deposits + Money market deposit accounts + Small-denomination (less than $100,000) time deposits + Shares in retail money market mutual funds

medium of exchange

A function of money in which goods and services are sold for money, then the money is used to purchase other goods and services.

Price Level

The absolute level of a price index, whether the consumer price index (CPI; retail prices), the producer price index (PPI; wholesale prices), or the GDP deflator (average price of all items in GDP).

Open Market Operations

The buying and selling of U.S. government securities, such as Treasury bills and bonds, to adjust reserves in the banking system.

barter

The direct exchange of goods and services for other goods and services.

Return on Investment (ROI)

The earnings, such as interest or capital gains, that a saver receives for making funds available to others. It is calculated as earnings divided by the amount invested

compounding effect

The effect of interest added to existing debt or savings leading to substantial growth in debt or savings over the long run.

reserve ratio

The percentage of a bank's total deposits that are held in reserves, either as cash in the vault or as deposits at the regional Federal Reserve Bank.

GDP breakdown:

1. GDP reflects the final value of goods and services produced 2. the term gross domestic product implies, GDP is a measure of the output produced by resources in the United States. 3. whenever possible, the NIPA uses market values, or the prices paid for products, to compute GDP. 4. the NIPA accounts focus on market-produced goods and services.

Real Values Formula

=Nominal x (Base Year Index / Current Year Index)

Which of the following is a fixed investment? 1. Payment of a utility bill by a business 2. A cement truck 3. food for a family dinner 4. inventory

A cement truck

GDP does not include most of the benefits and cost of from:

Environmental and natural resources

circular flow diagram

Illustrates how households and firms interact through product and resource markets and shows that economic aggregates can be determined by examining either spending flows or income flows to households.

Investment in human capital

Improvements to the labor force from investments in skills, knowledge, and overall quality of workers and their productivity

teaser rates

Promotional low interest rates offered by lenders for a short period of time to attract new customers and to encourage spending.

Rule of 70

Provides an estimate of the number of years for a value to double, and is calculated as 70 divided by the annual growth rate.

capital-to-labor ratio

The capital employed per worker. A higher ratio means higher labor productivity and, as a result higher wages

The discount rate

The interest rate the Federal Reserve charges commercial banks and other depository institutions to borrow reserves from a regional Federal Reserve Bank.

tradeoff between risk and return

The pattern of higher risk assets offering higher average annual returns on investment than lower risk assets.

Total factor productivity (TFP)

The portion of output produced that is not explained by the number of inputs used in production.

Infrastructure

The public capital of a nation, including transportation networks, power-generating plants and transmission facilities, public education institutions, and other intangible resources such as protection of property rights and a stable monetary environment.

marginally attached workers

Workers who were available for work and actively looked for it during the last 12 months, but not in the last 4 weeks.

Nominal GDP uses

current prices

The reward for not spending today is the __________ received on savings, enabling people to spend more in the future.

interest

Human Capital (denoted as H) includes

the improvements to labor capabilities from training, education, and apprenticeship programs. *falls under labor factor of production

Macroeconomic policies have

the most effect on cyclical unemployment

Commodities criteria:

1. It must be easily standardized 2. It must be divisible so that people can make change. 3. money must be durable and portable 4. must be accepted by many people as money if it is to act as money.

Monetary Policy Lags

1. Information Lags 2. Recognition Lags 3. Decision Lags 4. Implementation Lags

What shifts the demand for loanable funds?

1. Investment tax incentives 2. technology advances 3. regulation 4. product demand 5. business expectations

The PPI contains the following:

1. Price indexes for roughly 500 mining and manufacturing industries, including over 10,000 indexes for specific products and product categories 2. Over 3,700 commodity price indexes organized by type of product and end use 3. About 800 indexes for specific outputs of industries in the service sector, and other sectors that do not produce physical products 4. Several major aggregate measures of price changes, organized by stage of processing, both commodity-based and industry-based

The roles of financial institutions:

1. Reduce information cost 2. Reduce transaction costs 3. spread risk by diversifying assets

The three major monthly numbers the BLS reports are

1. The size of the labor force 2. number of people employed 3. number unemployed

What causes inflation?

1. prices for goods and services are influenced by demand factors such as consumer confidence, income, or wealth. 2. prices are affected by supply shocks, caused by fluctuations in the price of inputs such as oil, natural resources, and farm crops. 3. inflation can result from specific government actions. Government has a great power that no one individual has—the power to print money.

There are how many Federal Reserve Banks? and where?

12: 1. Boston 2. New York 3. Philadelphia 4. Cleveland 5. Richmond 6. Atlanta 7. Chicago 8. St. Louis 9. Minneapolis 10. Kansas City 11. Dallas 12. San Francisco

Federal Open Market Committee (FOMC)

A twelve-member committee that is composed of members of the Board of Governors of the Fed and selected presidents of the regional Federal Reserve Banks. It oversees open market operations (the buying and selling of government securities), the main tool of monetary policy.

business cycles

Alternating increases and decreases in economic activity that are typically punctuated by periods of recession and recovery. *Business cycles are a type of fluctuation found in the aggregate economic activity of nations that organize their work mainly in business enterprises: a cycle consists of expansions occurring at about the same time in many economic activities, followed by similarly general recession, contractions and revivals which merge into the expansion phase of the next cycle.1

The effect of Overstating Inflation

Although individuals initially benefit from the higher payments, overstating inflation in the long run makes real earnings appear smaller than what they actually are. This leads to a different set of issues for policymakers and our economy.

GDP deflator

An index of the average prices for all goods and services in the economy, including consumer goods, investment goods, government goods and services, and exports. It is the broadest measure of inflation in the national income and product accounts (NIPA).

The Consumer Price Index (CPI)

An index of the average prices paid by urban consumers for a typical market basket of consumer goods and services.

producer price index (PPI)

An index of the average prices received by domestic producers for their output.

Miscellaneous Adjustments

Both indirect business taxes (sales and excise taxes) and foreign income earned in the United States are part of GDP, but must be backed out of payments to factors of production in this country. Neither is paid to U.S. factors of production, and therefore appear in a separate category for measurement purposes.

fractional reserve banking system

Describes a banking system in which a portion of bank deposits are held as vault cash or in an account with the regional Federal Reserve Bank, while the rest of the deposits are loaned out to generate the money creation process.

informal economy

Includes all transactions that are conducted but are not licensed and/or generate income that is not reported to the government (for tax collection).

government spending

Includes the wages and salaries of government employees (federal, state, and local); the purchase of products and services from private businesses and the rest of the world; and government purchases of new structures and equipment.

Investment tax incentive

Investment tax credits effectively reduce tax payments for firms building new factories or buying new equipment. These laws give firms incentives to invest by increasing their after-tax rate of return, and often are created in bad economic times with the expectation of a quick jolt to investment demand.

gross private domestic investment (GPDI)

Investments in such things as structures (residential and nonresidential), equipment, and software, and changes in private inventories.

unit of account

Money provides a yardstick for measuring and comparing the values of a wide variety of goods and services. It eliminates the problem of double coincidence of wants associated with barter.

real GDP per capita

Real GDP divided by population. Provides a rough estimate of a country's standard of living.

Social Security

Social Security is another form of retirement savings that nearly every American participates in from the time they start working as a teenager. The payroll tax (FICA) is 12.4% (of which 6.2% is paid by employees and 6.2% is paid by employers) of wage earnings up to a maximum of $118,500 in 2016. Unlike 401(k) contributions, the money you contribute to FICA is not yours, but rather is used to pay the benefits of those currently collecting Social Security benefits. Benefits are determined by a formula based on one's lifetime contributions.

natural rate of unemployment

The level of unemployment at which price and wage decisions are consistent; a level at which the actual inflation rate is equal to people's inflationary expectations and where cyclical unemployment is zero.

vesting period

The minimum number of years a worker must be employed before the company's contribution to a retirement account becomes permanent.

M1 equals

The narrowest definition of money that measures highly liquid instruments including currency (banknotes and coins), demand deposits (checks), and other accounts that have check-writing or debit capabilities. ▪ Currency (banknotes and coins) + Demand deposits + Other checkable deposits

Summing Up Income Measures

To this point, we have described different measures of income including wages, salaries, and benefits; profits (for sole proprietors, partnerships, and corporations); rental income; and interest. Summing each of these measures along with the miscellaneous adjustments equals the national income.

cyclical unemployment

Unemployment that results from changes in the business cycle, and where public policymakers can have their greatest impact by keeping the economy on a steady, low-inflationary, solid growth path.

Deflating a series of data with an index involves:

adjusting some current value (often called the nominal value) for the impact of inflation, thereby creating what economists call a real value.

Physical capital (denoted as K) includes

all manufactured products that are used to produce goods and services. This includes machinery used in factories, cash registers in stores and restaurants, communications networks used to track shipments.

The Chair and Vice Chair of the Board must

already be Board members; they are appointed to their leadership positions by the president, subject to Senate confirmation , for terms of four years. They can be reappointed (without term limits) as long as they remain members of the board of Governors

Labor(denoted as L) includes

both the mental and physical talents of people.

The major components of the NIPA can be found in either of two ways:

by adding up the income in the economy or by adding up spending.

Business cycles are officially dated:

by the National Bureau of Economic Research (NBER)

leading economic index (LEI)

established by The Conference Board, an independent business and research association, is another index that economists look to when predicting movements in the business cycle. The LEI uses ten important leading indicators to produce a weighted index. Because each indicator is a predictor of how the economy should perform in the near future, any change in the LEI today is supposed to reflect how the economy will change tomorrow.

Rental Income

is the income that flows to individuals engaged in renting real property (calculated as rent collected less depreciation, property taxes, maintenance and repairs, and mortgage interest). It does not include the income of real estate agents or brokers, but it does include the imputed rental value of homes occupied by their owners (again, less depreciation, taxes, repairs, and mortgage interest), along with royalties from patents, copyrights, and rights to natural resources.

infrastructure is a country's

public capital, including dams, roads, transportation networks, power-generating plants, and public schools

Government provide capital and technology by

purchasing public capital and providing incentives for private investment, supporting education through subsidies and financial aid, and supporting research with grants

Most money that we use every day does not involve cash and coins, but:

rather a sophisticated system of electronic debits and credits to our bank accounts

Entrepreneurial ability and ideas, or technology (denoted as A) describe

the ability to take resources and use them in creative ways to produce goods and services.

The face value of the bond

the amount of money a buyer will get back once a bond matures

wages and salaries constitute:

the bulk of income in our economy, with rents, interest, and profits making up the rest

Because of the high costs of holding credit card debt, it is generally advisable to:

· Keep credit card balances to a minimum. · Find lower cost borrowing opportunities (such as student loans or bank loans) to keep higher interest credit card balances lower. · Avoid applying for too many credit cards, because fees can rack up and credit scores can be negatively affected by excessive credit applications. · Never miss a minimum payment, for any amount, even for a month. Every missed payment remains on credit reports for years, potentially raising costs for future car loans and home mortgages, and even making insurance and certain jobs harder to find.