Econ Chapter 6-10

hyper inflation

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

real GDP per capita

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

automatic stabilizers

Taz revenues and transfer payments automatically expand or contract in ways that reduce the intensity of business fluctuations without any overt action by congress or other policy makers

deflation

a decline in overall prices throughout the economy. This is the opposite of inflations.

inflation

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

Consumer Price Index (CPI)

a measure of the average change in prices pad by urban consumers for a typical market basket of consumer goods and services

Producer Price Index (PPI)

a measure of the average changes in the prices received for their output

disinflation

a reduction in the rate of inflation. An economy going through disinflation is still facing inflation, but at a declining rate

withdrawals

activities that remove spending from the economy, including saving, taxes, and imports

GDP deflator

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

aggregate expedintures

consist of consumer spending, business investment spending, government spending and net foreign spending (export minus imports): GDP= C+I+G+(X-M)

catch-up effect

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

diminishing returns to capital

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

balanced budget multiplier

equal changes in government spending and taxation lead to an equal change in income

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 that output. Higher productivity and higher living standards are closely related.

investment in human capital

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

Keynesian macroeconomic equilibrium

in the simple model, the economy is at rest; spending injections (investment) are = to withdraws (saving), or I=S, and there are no net inducements for the economy to change the level of output or income. In the full model, all injections of spending must = all withdrawals at equilibrium : I+G+X=S+T+M

injections

increments of spending, including investment government spending, and exports

discretionary fiscal policy

involves adjusting government spending and tax policies with the express short-run goal of moving the economy toward full employment, expanding economic growth, or controlling inflation

expansionary fiscal policy

involves increasing government spending, increasing transfer payments, or decreasing taxes, to increase aggregate demand to expand output and the economy

contractionary fiscal policy

involves increasing withdrawals from the economy by reducing government spending, transfer payments, or raising taxes to decrease aggregate demand to contract output and the economy

production function

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

supply-side fiscal policies

policies that focus on shifting the long-run aggregate supply curve to the rights, expanding the economy without increasing inflationary pressures. Unlike policies to increase aggregate demand, supply-side policies take longer to have an impact on the economy

Rule of 70

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

externally held debt

public debt held by foreigner which is roughly equal to half of the outstay ding US debt held by the public

internally held debt

public debt owned by US banks, corporations, mutual funds, pension plants, and individuals

cyclical unemployment

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

laffer curve

shows a hypothetical relationship between income tax rates and tax revenues. As tax rates rise from zero, revenues rise, reach a maximum, then decline until revenues reach zero again at a 100% tax rate

mandatory spending

spending authorized by permanent laws that does not go through the same appropriations process as discretionary spending. Mandatory spending includes such programs such as Social Security, Medicare, and interest on the national debt

investment

spending by businesses that adds to the productive capacity of the economy. Investment depends on factors such as its rate of return, the level of technology and businesses expectations about the economy

consumption

spending by individuals and households on both durable goods and non durable goods

multiplier

spending changes alter equilibrium income by the spending change times the multiplier. one person's spending becomes another's income and that second person spends some which becomes another persons income and so on, until it has changed by 1/(1-MPC)=1/MPS. it operates in both directions

natural rate of unemployment

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

compounding

the ability of growth to build on previous growth. It allows a value such as GDP to increase significantly over time as income increases n top of previous increases in income

price level

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

deficit

the amount by which annual government spending exceeds tax revenues

surplus

the amount by which annual tax revenues exceed government expenditures

capital-to-labor ratio

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

marginal propensity to consume

the change in consumption associated with a given change in come ( change in C/ change in Y)

marginal propensity to save

the change in saving associated with a given change in income (change in S/ change in Y)

public choice theory

the economic analysis of public and political decision making, looking at issues such as voting the impact of election incentives on politicians, the influence of special interest groups, and rent-seeking behaviors

recessionary gap

the increase in aggregate spending needed to bring a depressed economy back to full employment ; equal to the GDP gap divided by the multiplier

discretionary spending

the part of the budget that works its way through the appropriations process of congress each year and includes such programs as national defense, transportation, science, environment, and income security

average propensity to consume

the percentage of income that is consumed (C/Y)

average propensity to save

the percentage of income that is saved (S/Y)

total factor productivity

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

inflationary gap

the spending reduction necessary to bring an overheated economy back to full employment

decision lag

the time it takes congress and the administration to decide on a policy once a problem is recognized

recognition lag

the time it takes for policymakers to confirm that the economy is in recession or a recovery. Short-term variations in key economic indicators are typical and sometimes represent nothing more than randomness in the data

information lag

the time policy makers must wait for economic data to be collected, processed, and reported. Most macroeconomic data are not available until at least one quarter after the fact

implementation lag

the time required to turn fiscal policy unto law and eventually have an impact on the economy

public debt

the total accumulation of past deficits less surpluses; it includes Treasury bills, notes, and bonds, and US saving bonds

labor force

the total number of those employed and unemployed. (# of unemployed)/ labor force = %

real GDP

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

discouraged workers

to continue to be counted as unemployed, those without work must actively seek work. Discouraged workers are those who have given up actively looking for work and, as a result,are not counted as unemployed.

structural unemployment

unemployment caused by changes in the structure of consumer demands or technology. When demand for some product declines and the skills of this industry's workers often become obsolete as well. result in an extended bout of unemployment while new skills are developed.

paradox of thrift

when investment is positively related to income and households intend to save more, they reduce consumption, income, and output, reducing investment so that the result is that consumers actually end up saving less

frictional unemployment

workers who 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.