Macro Quiz 2

Factor Market

market in which firms purchase the factors of production from households

Product Market

the market in which households purchase the goods and services that firms produce

Full employment output

the level of output that results when the labor market is in equilibrium and the economy is producing at full employment

Economic Expansion

the situation that occurs when an economy is growing and people are spending more money; their purchases stimulate the production of goods and services, which in turn stimulates employment

Economic Contractions

a decline in national output as measured by gross domestic product

Potential Output

the level of real GDP the economy would produce if all prices, including nominal wages, were fully flexible

Peak

the height of an economic expansion, when real GDP stops rising

Trough

Lowest point in business cycle, where unemployment is often highest

Recession

a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters.

GDP

the total market value of all final goods and services produced annually in an economy

Intermediate Goods

goods used in the production of final goods

Consumer Price Index

the change in the cost of buying a fixed basket of goods and services.

Multiple counting

wrongly including the value of intermediate goods in the GDP; counting the same good or service more than once

Final good

a good sold to final users

Nominal GDP

total market value of all final goods and services produced in an economy, using current prices

Nonmarket transactions

economic activity not taking place in the market

Net exports

exports minus imports

price index

a measurement that shows how the average price of a standard group of goods changes over time

real gdp

nominal GDP adjusted for inflation

Cost push inflation

When prices rise due to an increase in the cost of production.

Demand pull inflation

increases in the price level (inflation) resulting from an excess of demand over output at the existing price level, caused by an increase in aggregate demand

Anticipated inflation

Increases in prices which economic actors are able to predict with accuracy.

Disinflation

A fall in the rate of inflation.

COLA

an increase to salary or wages in order to offset the rise of the cost of living

deflation

A situation in which prices are declining

hyperinflation

A very rapid rise in the price level; an extremely high rate of inflation.

nominal income

The actual amount of money somebody earns, using current prices

real income

Nominal income adjusted for inflation, reflecting purchasing power of individual

stagflation

a period of slow economic growth and high unemployment while prices rise

cyclical unemployment

unemployment that rises during economic downturns and falls when the economy improves

natural rate of unemployment

the normal rate of unemployment around which the unemployment rate fluctuates

labor force

the total number of workers, including both the employed and the unemployed

structural unemployment

unemployment that results because the number of jobs available in some labor markets is insufficient to provide a job for everyone who wants one

frictional unemployment

A type of unemployment caused by workers voluntarily changing jobs and by temporary layoffs; unemployed workers between jobs.