Macroeconomics Exam 2 Chapter 5-8

Okun law

1% more unemployment results in 2 percent less output

Disposable income

After-tax income of households; personal income less personal taxes.

investment

Expenditures on (production of) new plant, equipment, and structures (capital) in a given time period, plus changes in business inventories.

Net domestic product

GDP less depreciation

Business cycle

Alternating periods of economic expansion and economic recession

Cost of living adjustment

Automatic adjustments of nominal income to the rate of inflation

Frictional unemployment

Brief periods of unemployment experienced by people moving between jobs or into the labor market

Labor Force participation rate

The percentage of the working-age population that is working or seeking employment

Gross Domestic Product

The total value of goods and services produced within the borders of a country during a specific time period, usually one year.

Recession

a decline in total output (real GDP) for two or more consecutive quarters

deflation

a decrease in the general level of prices

Adjustable rate mortgage

a mortgage that adjusts the nominal interest rate to changing rates of inflation

Growth Recession

a period during which real GDP grows, but at a rate below the long-term trend of 3 percent

GDP deflator

a price index that refers to all goods and services included in GDP

Labor force

all persons age 16 and over who are either working for pay or actively seeking paid employment

Core inflation rate

changes in the CPI, excluding food and energy prices

Laissex faire

doctrine of "leave it alone" of nonintervention by government in the market mechanism

Import

goods and services purchased from internation source

Export

goods and services sold to international buyers

Intermediate Goods

goods or services purchased for use as input in the production of final goods or in services

Natural Rate of unemployment

long-term rate of unemployment determined by structural forces in labor and product markets

Consumer price index

measure of change in price over time of specific group of goods and services

Law of demand

quantity of a good demanded in a given time period increases as its price falls, ceteris paribus

Say's law

supply creates its own demand

Saving

that part of disposable income not spent on current consumption; disposable income less consumption

Price stability

the absence of significant changes in the average price level; officially defined as a rate of inflation of less than 3 percent

Production possibilities

the alternative combination of final goods and services that could be produced in a given time period with all available resources and technology

production possibilities

the alternative combinations of final goods and services that could be produced in a given time period with all available resources and technology

Nominal income

the amount of money income received in a given time period, measured in current dollars

Inflation rate

the annual percentage rate of increase in the average price level

Equilibrium (macro)

the combination of price level and real output that is compatible with both aggregate demand aggregate supply

Depreciation

the consumption of capital in the production process; the wearing out of plant and equipment

Unemployment

the inability of labor force participants to find jobs

Value Added

the increase in the market value of a product that takes place at each stage of the production process

Full employment

the lowest rate of unemployment compatible with price stability, variously estimated at between 4 and 6 percent unemployment

National Income Accounting

the measurement of aggregate economic activity, particularly national income and its components

Bracket creep

the movement of taxpayers into higher tax brackets (rates) as nominal incomes grow

real interest rate

the nominal interest rate minus the inflation rate

Item Weight

the percentage of total expenditure spent on a specific product; used to compute inflation index

relative price

the price of one good in comparison with the price of other goods

Unemployment rate

the proportion of the labor force that is unemployed

Inflationary flashpoint

the rate of output at which inflationary pressures intensify; the point on the AS curve where slope increases sharply

Outsourcing

the relocation of production to foreign countries

Macroeconomics

the study of aggregate economic behavior, of the economy as a whole

Full employment GDp

the total market value of final goods and services that could be produced in a given time period at full employment; potential GDP

Money illusion

the use of nominal dollars rather than real dollars to gauge changes in one's income or wealth

Net export

the value of exports minus the value of imports

Real GDP

the value of final output produced in a given period, adjusted for changing prices

Nominal GDP

the value of final output produced in a given period, measured in the prices of that period (current prices)

nominal GDP

the value of final output produced in a given period, measured in the prices of that period (current prices)

Base Year

the year used for comparative analysis; the basis for indexing price changes

Base year

the year used for comparative analysis; the basis for indexing price changes

GDP per capita

total GDP divided by total population; average GDP

National income

total income earned by current factors of production: GDP less depreciation, plus net foreign factor income

Gross investment

total investment expenditure in a given time period

Aggregate demand

total quantity of output (real GDP) demanded at alternative price levels in a given time period, ceteris paribus

Aggregate supplu

total quantity of output (real GDP) produces are willing and able to supply at alternative prices levels in a given time period, ceteris paribus

Cyclical unemployment

unemployment attributable to a lack of job vacancies, that is, to an inadequate level of aggregate demand

Structural unemployment

unemployment caused by a mismatch between the skills (or location) of job seekers and the requirements (or location) of available jobs

Seasonal unemployment

unemployment due to seasonal changes in employment or labor supply

Hyperinflation

Inflation rate in excess of 200 percent, lasting at least one year

Net investment

gross investment less depreciation

real income

income in constant dollars; nominal income adjusted for inflation

Personal income

income received by households before payment of personal taxes

Inflation

increase in average level of prices of goods and service

Discouraged worker

individual who isn't actively seeking employment but would look for or accept a job if one were available

Underemployment

people seeking full-time paid employment who work only part-time or are employed at jobs below their capability