Macro Test

COLA

(cost of living adjustment) An adjustment made to Social Security and Supplemental Security Income to adjust benefits to counteract the effects of inflation.

economic growth

An increase in the capacity of an economy to produce goods and services, compared from one period of time to another. It can be measured in nominal terms, which include inflation, or in real terms, which are adjusted for inflation

Components of GDP

Consumption, investment, government spending, and net exports

peak

GDP at its highest point in the business cycle

depression/trough

GDP at its lowest point in the business cycle, if its super deep, it's a depression.

GDP Per Capita

GDP divided by the size of the population, it is equivalent to the average GDP per person

Real GDP

The total value of all final goods and services produced in the economy during a given year, calculated using the prices of a base year

deflation

When the overall price level decreases so that inflation rate becomes negative

galloping inflation

When the rise in prices is very slow (less than 3% per annum) like that of a snail or creeper. Such an increase in prices is regarded safe and essential for economic growth.

rule of 70

a calculation of how long it takes real GDP per capita to double (70/ annual growth rate of variable)

bonds

a debt investment in which an investor loans money to an entity (typically corporate or governmental) which borrows the funds for a defined period of time at a variable or fixed interest rate.

disinflation

a decrease in the rate of inflation - a slowdown in the rate of increase of the general price level of goods and services in a nation's gross domestic product over time.

aggregate production function

a hypothetical function that shows how productivity depends on the quantities of physical capital per worker and human capital per worker as well as the state of technology

market basket

a hypothetical set of consumer purchases of goods and services

financial markets

a market in which people and entities can trade financial securities, commodities, and other fungible items of value at low transaction costs and at prices that reflect supply and demand. Securities include stocks and bonds, and commodities include precious metals or agricultural goods

core inflation

a measure of inflation that excludes certain items that face volatile price movements. Core inflation eliminates products that can have temporary price shocks because these shocks can diverge from the overall trend of inflation and give a false measure of inflation.

GDP price change index (GDP deflator)

a measure of the level of prices of all new, domestically produced, final goods and services in an economy. (in a given year is 100 times the ratio of nominal GDP to real GDP in that year)

Real GDP growth

a measure of the rate of change that a nation's gross domestic product (GDP) experiences from one year to another

inertial inflation

a situation where all prices in an economy are continuously adjusted with relation to a price index by force of contracts.

hyperinflation

a situation where the price increases are so out of control that the concept of inflation is meaningless.

inflation

a sustained increase in the general price level of goods and services in an economy over a period of time. When the price level rises, each unit of currency buys fewer goods and services.

stocks

a type of security that signifies ownership in a corporation and represents a claim on part of the corporation's assets and earnings.

capital

already-produced durable goods or any non-financial asset that is used in production of goods or services.

diminishing returns to physical capital

an aggregate production function exhibits when, holding the amount of human capital per worker and the state of technology fixed, each successive increase in the amount of physical capital per worker leads to a smaller increase in productivity

price stability

avoiding both prolonged inflation and deflation.

physical capital

consists of human-made resources such as buildings and machines

seasonal adjustment

data for unemployment rates to reveal the underlying trends in labor markets.

annual rate

describes the interest rate for a whole year (annualized), rather than just a monthly fee/rate, as applied on a loan, mortgage loan, credit card, etc.

Private savings

equal to disposable minus consumer spending, is disposable income that is not spent on consumption

Disposable (personal Income)

equal to income plus government transfers minus taxes, it is the total amount of household income available to spend on consumption and to save.

Net domestic product

equals the gross domestic product (GDP) minus depreciation on a country's capital goods. Net domestic product accounts for capital that has been consumed over the year in the form of housing, vehicle, or machinery deterioration.

business cycle

four phases: expansion, peak, contraction, and trough. The natural phases of the business cycle, centered around the long-run trend of real GDP

intermediate goods and services

goods and services bought from one firm by another firm that are inputs for production of final goods and services

final goods and services

goods and services sold to the final, or end, user

full employment

he condition in which virtually all who are able and willing to work are employed.

cyclical unemployment

includes people who are not working because firms do not need their labor due to lack of demand or downturn in the business cycle.

real income

income divided by the price level

cost-push inflation

inflation caused by an increase in prices of inputs like labour, raw material, etc. The increased price of the factors of production leads to a decreased supply of these goods.

moderate inflation

inflation that enhances the stability in the economy

nominal interest rates

interest expressed in dollar terms

convergence hypothesis

international differences in real GDP per capita tend to narrow over time- those who have had low GDP per capita in 1955 have had high growth rates since then

economic indicators

is a statistic about an economic activity.

demand-pull inflation

is asserted to arise when aggregate demand in an economy outpaces aggregate supply. It involves inflation rising as real gross domestic product rises and unemployment falls, as the economy moves along the Phillips curve.

National Income

keeps track of the spending of consumers, sales of producers, business investment, government purchases, etc.

aggregate price level

measure of the average level of prices of goods and services in the economy.

producer price index

measures changes in the prices of goods purchased by producers

consumer price index

measures the cost of the market basket of a typical urban American family

structural unemployment

mismatches between job seekers and openings. unemployed people who lack skills or do not have sufficient education are structurally unemployedw

discouraged workers

nonworking people who are capable of working but have given up looking for a job given the state of the job market

transfer payments

payments made by the government to individuals for which no good or service is provided in return

seasonal unemployment

people who are only employed due to certain weather conditions

frictional employment

people who are temporarily between jobs, they may have quit a job to find another, or are looking for the best opportunity after graduating high school or college

employment rate

percentage of the total number of people in the labor force that are employed

recession (contraction)

real output in the economy is decreasing, and the unemployment rate is rising, if the recession continues long enough, deflation occurs.

recovery (expansion)

real output in the economy is increasing and the unemployment rate is declining.

research and development

spending to create and implement new technologies

inventories

stocks of goods and raw materials held to facilitate business operations

labor force

sum of employment and unemployment

job search

the act of looking for employment, due to unemployment, discontent with a current position, or a desire for a better position.

Consumption (consumer spending)

the amount of money spent by households in an economy. The spending includes durables, such as washing machines, and nondurables, such as food. (biggest component of GDP)

total factor productivity

the amount of output that can be produced with a given amount of factor inputs

retained earnings

the corporation's cumulative earnings that have not been distributed to its stockholders

expenditures

the current value of all the finished goods and services in the economy.

GDP gap

the difference between actual GDP or actual output and potential GDP. The calculation for the output gap is Y-Y* where Y is actual output and Y* is potential output.

net exports

the difference between the value of exports and the value of imports

aggregate output

the economy's total quantity of output of final goods and services.

deprication

the gradual decrease in the economic value of the capital stock of a firm, nation or other entity, either through physical depreciation, obsolescence or changes in the demand for the services of the capital in question.

human capital

the improvement in labor created by the education and knowledge embodied by the workforce

shoe leather costs

the increased costs of transactions caused by inflation

natural rate of unemployment

the lowest rate of unemployment that an economy can sustain over the long run. (5.3%)

real interest rates

the nominal interest rate minus the rate of inflation

real vs nominal changes

the nominal price of a good is its value in terms of money, such as dollars, French francs, or yen. The relative or real price is its value in terms of some other good, service, or bundle of goods.

underemployment

the number of people who work part time because they cannot find full time jobs

anticipated inflation

the percentage increase in the level of prices over a given period that is expected by participants in an economy.

unanticipated inflation

the percentage increase in the level of prices over a given period that is unexpected by participants in an economy.

unemployment rate

the percentage of the total number of people in the labor force who are unemployed

Investment

the purchase of goods that are not consumed today but are used in the future to create wealth.

menu costs

the real cost of changing a listed price

labor force participation rate

the share of the working-age population that is the labor force (labor force/ pop 16+) X100

aggregate spending

the sum of consumer spending, investment spending, government purchases of goods or services, and exports minus imports. Is the total spent on domestically produced final goods and services in the economy.

technology

the technical means for the production of goods and services

government borrowing

the total amount of funds borrowed by the government in the financial markets

GDP

the total value of all final goods and services produced in an economy during a given period

Gross National Product

the total value of goods produced and services provided by a country during one year, equal to the gross domestic product plus the net income from foreign investments.

Nominal GDP

the value of all final goods and services produced in the economy during a given year, calculated using the prices current in the year which the output is produced.

real wage

the wage rate divided by the price level

base year

the year used for comparison for the level of a particular economic index. The arbitrary level of 100 is selected so that percentage changes (either rising or falling) can be easily depicted.

Government purchases and investment

total expenditures on goods and services by federal, state, and local governments

labor productivity

used to refer either to output per worker or to output per hour

efficiency wages

wages that employers set above the equilibrium wage rate as an incentive for better employee performance

sustainable growth

whether long-run economic growth can continue in the face of the limited supply of resources and the impact of growth on the environment