Unit 3 (Macroeconomics): Key Terms

Comprehensive vocabulary flashcards covering key macroeconomic concepts, indicators, business cycles, and policy tools from Unit 3.

Circular flow model

An economic model that illustrates how money moves from producers to consumers and back again in an endless loop.

GDP growth rate

The percentage change in GDP from one period to another.

GDP (gross domestic product)

The total market value of all final goods and services produced within a country’s borders during a given period (usually a year).

Real GDP per capita

$$\text{country's real GDP} \div \text{country’s total population}$$

GDP growth

Increasing the size of the pie (GDP) can increase the amount available to each person (GDP per capita).

GDP contraction

Decreasing the size of the pie (GDP) can decrease the amount available to each person (GDP per capita).

Standard of living

A measure of the goods and services available to each person in a country; a measure of economic well-being.

Quality of life

The extent to which a person obtains satisfaction from life, including emotional, material, and physical well-being.

Unemployment rate

The percentage of the labor force that is willing and able to work, does not currently have a job, and is actively looking for employment ($\text{unemployed} \div \text{labor force}$).

Potential labor force

Those age $16$ or older who are not in the military or institutionalized.

Labor force

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

Employed

People who have jobs.

Unemployed

People who are willing and able to work, do not currently have jobs, and are actively looking for employment.

Underutilized labor

Discouraged workers and underemployed workers reflect problems in the labor market that are not captured by the official unemployment rate.

Discouraged workers

Individuals who have ceased their job search, believing no suitable employment is available.

Underemployed workers

Individuals in positions that do not fully utilize their skills, qualifications, or available time.

Inflation

A general, sustained upward movement of prices for goods and services in an economy.

Inflation rate

The percentage change in the general price level of goods and services over a period of time.

Nominal figure

Measured in current prices; not adjusted for inflation.

Real figure

Measured in constant prices (base year prices); adjusted for inflation.

Disinflation

A decrease in the inflation rate or a slowdown in the upward movement of prices for goods and services in the economy.

Deflation

A general, sustained downward movement of prices for goods and services in an economy.

Consumer price index (CPI)

A measure of the price level paid by households for a representative 'basket' of goods and services; the BLS assumes all households’ spending perfectly matches the representative basket.

Business cycle

A simplified way economists represent fluctuations in the macroeconomy.

Economic expansion

Characterized by ↑GDP growth rate, ↓unemployment rate, and ↑inflation rate.

Economic contraction

Characterized by ↓GDP growth rate, ↑unemployment rate, and ↓inflation rate.

Recession

A significant decline in general economic activity extending over a period of time.

Interest rate

The price of lending and borrowing money.

Monetary policy

The process of adjusting interest rates in an effort to influence economic conditions.

Federal funds rate

An influential interest rate that the Fed can adjust.

Federal Reserve’s dual mandate

Stable prices and maximum employment.

Fiscal policy

Government (federal, state, and local) decisions on taxation and spending to achieve a healthy and stable economy.

Contractionary fiscal policy

Policy designed to slow increases in the price level; e.g., by cutting government spending on programs and services and/or by increasing taxes.

Expansionary fiscal policy

Policy designed to stimulate growth; e.g., by increasing government spending and/or by decreasing taxes.