eco test 2

Microeconomics

the study of how individuals and firms manage resources

Macroeconomics

the study of the economy as a whole and how policy-makers manage the growth and behavior of the overall country

Gross National Product (GNP)

the sum of the market calues of all final goods and services produced by a country’s businesses within a given period of time

Consumption

spending on goods and services by private individuals and households

Investment

spending on productive inputs such as factories, machinery, or inventories

Inventory

the stock of goods that a company produces now but does not sell immediately

Government Purchases

spending on goods and services by all levels of government

net exports (NX)

exports minus imports; the value of goods and services produced domestically and consumed abroad minus the value of goods and services produced abroad and consumed domestically

real GDP

GDP calculation in which goods and services are valued at constant prices

nominal GDP

GDP calculation in which goods and services are valued at current prices

GDP deflator

a measure of the overall change in prices in an economy, using the ratio between real and nominal GDP

GDP per capita

a country’s GDP divided by its population

recession

a period of significant economic decline

depression

a particularly severe or extended recession

Green GDP

an alternative measure of GDP that subtracts the environmental costs of production from the positive outputs normally counted in GDP

market basket

a list of specific goods and services in fixed quantities

price index

a measure showing how much the cost of a market basket has risen or fallen relative to the cost in a base time period or location

Consumer Price Index (CPI)

a measure that tracks changes in the cost of a basket of goods and services purchased by a typical U.S. household

Inflation rate

the size of the change in the overall price level; the percent change in a price index such as the CPI from year to year

headline inflation

measure of inflation that measures price changes for all of the goods in the market basket of the average urban consumer

core inflation

measure of inflation that measures price changes minus food and energy costs, which are traditionally volatile

indexing

the practice of automatically increasing payments in proportion to the cost of living

purchasing power parity (PPP)

the theory that purchasing power in different countries should be the same when stated in a common currency

PPP-adjustment

recalculating economic statistics to account for differences in price levels across countries

unemployment

situation in which someone wants to work but cannot find a job in the current market

labor force

people who are in the working-age population and are either employed or unemployed; people who are currently working or who are actively trying to find a job

unemployment rate

the number of unemployed people divided by the number of people in the labor force

labor-force participation rate

the number of people in the labor force divided by the working-age population

discouraged workers

people who have looked for work in the past year but have given up looking because of the condition of the labor market

underemployed

workers who are either working less than they would like to or are working in jobs below their skill level

labor demand curve

a graph showing the relationship between the total quantity of labor demanded by all the firms in the economy and the wage rate

labor supply curve

a graph showing the relationship between the total labor supplied in the economy and the wage rate

natural rate of unemployment

the normal level of unemployment that persists in an economy in the long run

frictional unemployment

unemployment caused by workers who are changing location, job, or career

structural unemployment

unemployment that results from a mismatch between the skills workers can offer and the skills in demand

real-wage/classical unemployment

unemployment that results from wages being higher than the market-clearing level

labor unions

groups of employees who join together to bargain with their employer(s) over salaries and work conditions

efficiency wages

wages that are deliberately set above the market rate to increase productivity

unemployment insurance

money paid by the government to people who are unemployed

productivity

output produced per worker

physical capital

the stock of equipment and structures that allow for the production of goods and services

human capital

the set of skills, knowledge, experience, and talent that determine the productivity of workers

convergence theory

the theory that countries that start out poor will initially grow faster than rich ones but will eventually converge to the same growth rate

investment trade-off

a reduction in current consumption to pay for investment in capital intended to increase future production

domestic savings

savings for capital investment that come from within a country; equal to domestic income minus consumption spending

foreign direct investment (FDI)

investment that occurs when a firm runs part of its operation abroad or owns all or part of another company abroad

Equation of GDP

Consumption + Investment + Government Purchases + Net Exports

Equation to calculate Net Exports

Exports - Imports

Equation for National Income

Wages + Interest + Rent + Profits

Equation for Value-Added (Production) Approach

Value of Output (Sales) - Value of Intermediate Goods

Equation for GDP Deflator

(nominal GDP/ Real GDP) x 100

Equation for Inflation Rate

(Deflator year 2 - Deflator year 1/ Deflator year 1) x 100 OR

[(CPI year 2 - CPI year 1) / CPI year 1] x 100

Equation for GDP Growth Rate

(GDP in Year 2 - GDP in Year 1/ GDP in Year 1) x 100

Equation for Nominal GDP

Price in Current Year x Quanity in Current Year

Equation for Real GDP per Capita

Real GDP / Total population

Equation for Consumer Price Index (CPI)

(Cost of base-year basket in desired-year prices / Cost of base-year basket in based-year prices) x 100

Equation of Real Value year Y

Nominal value year Y x ( CPI year Y / CPI year X)

Equation for PPP-adjusted GDP

Nominal dollars country A x (1 / 1 - Price level adjustment country A)

Equation for Labor Force

Employed + Unemployed

Equation for Unemployment Rate

(Number of Employed / Labor Force) x 100

Equation for Labor-Forced Particpation Rate

(Labor Force / Working-age population) x 100

Equation for Real GDP per capita Growth Rate

Nominal GDP growth rate - Inflation Rate - Population Growth Rate

Equation for GDP per capita in any year

GDP year A = GDP year B x (1 + Growth Rate)^ (year A - year B)

Equation for Rule of 70

Years until income doubles = 70 / Annual Growth Rate

Equation for Growth-Accounting