MACRO QUIZ 4

business cycle

short-run alternation between economic downturns and economic upturns

depression

very deep and prolonged downturn

recession

periods of economic downturns when output and employment are falling

expansion

sometimes called recoveries, are periods of economic upturns when output and employment are rising

business-cycle peak

point at which the economy turns from expansion to recession

business cycle trough

point at which the economy turns from recession to expansion

aggregate output**

economy’s total production of goods and services for a given time period - normally falls during a recession and rises during an expansion

inflation

rising aggregate price level

deflation

falling aggregate price level

inflation rate****

annual percent change in the aggregate price level / price index ((^{Price level in year 2 – Price level in year 1) / p}rice level in year 1) x 100 | borrowers gain at the expense of lenders

price stability

when aggregate price level is changing only slowly

economic growth

increase in the maximum possible output of an economy

deflation

decrease in the GDP output of the economy

real wage

wage rate divided by the price level

real income

income divided by the price level

shoe-leather costs

increased costs of transactions caused by inflation.

menu cost

real cost of changing a listed price

unit-of-account costs

arise from the way inflation makes money a less reliable unit of measurement

nominal interest rate

interest rate expressed in dollar terms

real interest rate

nominal interest rate minus the rate of inflation

disinflation

the process of bringing the inflation rate down

employment

number of people currently employed in the economy, either full time or part time

unemployment

number of people who are actively looking for work but aren’t currently employed

labor force

equal to the sum of employment and unemployment

labor force participation rate

percentage of the population aged 16 or older that is in the labor force (labor force / population 16+) * 100

unemployment rate

percentage of the total number of people in the labor force who are unemployed (# unemployed workers / labor force) * 100 | can overstate the true level of unemployment while people who are easily employed look for the right job

discouraged workers

non-working people who are capable of working but have given up looking for a job given the state of the job market

marginally attached workers

would like to be employed and have looked for a job in the recent past but are not currently looking for wor

underemployment

number of people who work part time because they cannot find full-time jobs

real GDP

total value of the final goods and services produced in the economy during a given year, calculated using the prices of a selected base year

nominal GDP

value of all final goods and services produced in the economy during a given year, calculated using the prices current in the year in which the output is produced

chained dollars

method of calculating changes in real GDP using the average between the growth rate calculated using an early base year and the growth rate calculated using a late base year

GDP per capita

measure of average GDP per person

aggregate price level

measure of the overall level of prices in the economy

market basket

used to measure the aggregate price level

price index

ratio of the current cost of that market basket to the cost in a base year, multiplied by 100

consumer price index - CPI

cost of the market basket of a typical urban American family

producer price index

GDP deflator

price level by calculating the ratio of nominal to real GDP, 100 times the ratio of nominal GDP to real GDP in that year

debt deflation

reduction in aggregate demand arising from the increase in the real burden of outstanding debt caused by deflation

liquidity trap

when monetary policy is unable to stimulate an economy because nominal interest rates are up against the zero bound