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
