Krugman Economics - Macroeconomics: GDP, Unemployment, and Inflation

Vocabulary flashcards covering macroeconomic indicators, GDP measurement methods, labor force classifications, types of unemployment, price indices, and inflation costs based on Krugman's Economics, 7th Edition.

Gross Domestic Product (GDP)

The total market value of all final goods and services produced within the borders of an economy during a specific period of time, typically one year.

Value-Added Approach

A method of calculating GDP by surveying firms and summing the value added by each producer, calculated as the value of sales minus the cost of purchased intermediate goods and services.

Aggregate Expenditure Approach

A method of calculating GDP by summing total spending on domestically produced final goods and services, expressed by the formula $GDP = C + I + G + (X - M)$, representing consumer spending, investment spending, government purchases, and net exports.

Factor Income Approach

A method of calculating GDP by summing all the factor incomes earned by households from firms in the economy, including wages, interest, rent, and profit.

Final Goods and Services

Goods and services sold to the ultimate or final user, rather than used as inputs for producing other goods.

Intermediate Goods and Services

Goods and services bought by one firm from another firm that are used up directly as inputs in the production of final goods and services.

Nominal GDP

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

Real GDP

The total value of all final goods and services produced in an economy during a given year, calculated using the constant prices of a selected base year to isolate changes in output from changes in prices.

GDP Deflator

A price index measuring the aggregate price level of all final goods and services produced domestically, calculated as $100 \times \frac{\text{Nominal GDP}}{\text{Real GDP}}$.

Employed

People currently holding a job in the economy, whether full-time or part-time, typically defined as having worked at least $1\,\text{hour}$ for pay or being temporarily absent from work.

Unemployed

People who are not currently employed but are actively looking for work within the past $4\,\text{weeks}$ and are available to take a job.

Labor Force

The total number of people in an economy who are either employed or actively seeking employment, calculated as $\text{Labor Force} = \text{Employed} + \text{Unemployed}$.

Labor Force Participation Rate

The percentage of the civilian working-age population ($16\,\text{years}$ and older) that is in the labor force, calculated as $\frac{\text{Labor Force}}{\text{Working-Age Population}} \times 100$.

Unemployment Rate

The percentage of the labor force that is unemployed, calculated as $\frac{\text{Number of Unemployed}}{\text{Labor Force}} \times 100$.

Discouraged Workers

Nonworking individuals who are capable of working but have stopped actively searching for a job because they believe no job opportunities exist for them.

Marginally Attached Workers

Individuals who want to work and have searched for a job in the past $12\,\text{months}$, but are not currently looking and have not looked in the past $4\,\text{weeks}$, excluding them from the official unemployment count.

Underemployment

A measure of workers who are employed part-time for economic reasons but would prefer full-time work, or workers whose jobs do not fully utilize their skills and education.

Frictional Unemployment

Unemployment resulting from the normal time workers spend in job search and matching their skills with available job openings.

Structural Unemployment

Persistent unemployment that occurs when more people are seeking jobs in a labor market than there are jobs available at the current wage rate, or when a mismatch exists between workers' skills and employer requirements.

Cyclical Unemployment

The deviation of the actual unemployment rate from the natural rate, directly caused by contractions and recessions in the business cycle.

Natural Rate of Unemployment

The baseline level of unemployment around which the actual unemployment rate fluctuates, composed entirely of frictional and structural unemployment.

Price Index

A normalized metric measuring the cost of a fixed market basket of goods and services relative to its cost in a designated base year, calculated as $\frac{\text{Cost of market basket in given year}}{\text{Cost of market basket in base year}} \times 100$.

Inflation Rate

The annual percentage change in a specified price index, calculated as $\frac{\text{Price Index in Year } 2 - \text{Price Index in Year } 1}{\text{Price Index in Year } 1} \times 100$.

Consumer Price Index (CPI)

A price index tracking the cost of a representative market basket of goods and services typically purchased by an urban consumer or family.

Producer Price Index (PPI)

A price index measuring changes in the prices of goods and services purchased by producers, often serving as an early indicator of inflation.

Shoe-Leather Costs

The increased transaction costs and wasted resources incurred as people make frequent efforts and trips to reduce their cash holdings during high inflation.

Menu Costs

The direct real costs incurred by firms to change, publish, and update listed prices in an inflationary environment.

Unit-of-Account Costs

The economic costs that arise when inflation degrades the reliability of money as a unit of measurement, distorting economic calculations and long-term financial planning.

Real Interest Rate

The interest rate corrected for the effects of inflation, calculated via the Fisher relationship as $\text{Real Interest Rate} = \text{Nominal Interest Rate} - \text{Inflation Rate}$.

Business Cycle

The recurring short-run fluctuation of an economy between periods of economic downturn (recessions) and economic upturn (expansions), marked by peaks and troughs.