Unit 4 Econ Test

GDP

The value of all goods and sevices produced in a country

What does GDP measure

Economic activity in a country

Not counted in GDP

• Transfer payments

• Used purchases

• Non-market activites

Nominal GDP

Current value of goods and services

Real GDP

Current value adjusted for price changes each year

Expansion

Period of economic growth

faling unemployment

business prosperity

Peak

Real GDP stops rising and the economy has reached its height of expansion

Contraction/Recession

Economic decline marked by falling GDP.

Trough

When the economy has reached it’s lowest point

Inflation Rate

Annual rate of change in price level

Disinflation

A decrease in the inflation rate

Deflation

A decreae in the price level (increase in the value of money)

Demand Pull Inflation

Demand rises faster than production of goods and services

Cost Push Inflation

Prices pushed upwards by growing production costs

Excessive Monetary Growth

Government prints too much money

Nominal Price

Base price not adjusted for inflation

Real Price

New price adjusted for inflation

Market Baskets

Key goods and services the government keeps track of to measure inflation.

Consumer Price Index

Measure of changes in the price of goods and services commonly purchased by consumers.

Hyperinflation

Caused by rapid increases in MS and output doesn’t keep.

Stagflation

Increased unemployment and inflation

Interest rate

The amount the lender charges, usually in a percentage, on top of the amouont loaded.,

Unemployment Rate

% of the workforce that is jobless and looking for work.

Seasonal Uemployment

Unemployment due to seasonal changes

Frictional Unemployment

Unemployment due to workers leaving a job looking for a new one.

Stuctural Unemployment

More people seeking jobs in the labor market than are available

When workers lack te skills required for available jobs.

Cyclical Unemployment

Unemployment caused by decreased economic activity

Labor Force

• Total pop- not in labor force

• Employed + Umeployed

Unemployment Rate

Unemployed/ labor force

Tax Base

Wealth that is subject to taxation

Tax incentive

Use of taxes to influence behavior

Excise Tax

taxes imposed on certain goods, services, and activites.

Tax Credit

Reduced taxes in response to a certanin behaviotr

Proportional Taxes

All income is taxed at the same rate

Progressve Taxes

Highrt percentage rate of taxation as income rises

Regressive Taxes

As income increase, the percentage you are charges deacreases.

Marginal Tax rate

The tax rate on the last dollar earned

Average Tax rate

total tax due/ total taxable income

Fiscal Policy

Use of government spending and taxation to influence the economy

Expansionary Fiscal Policy

attempts to expand output(GDP) and boost employment

• Increased government spending

• Cutting taxes

• Increasing transfer payment

Contractionary Fiscal Policy

Fiscal Policy that is used to reduce economic growth

• Decreased government spending

• Raising taxes

• Increasing transfer payments

Open Market Operations

The fed purchases and sells government bonds on the market to influence the money supply.

Fischer formula

Nominal Interest rate- Rate of Inflation- Real interest rate