Hampton UNI Macro-Economics chapter 26-28

Business Cycle

Recurring increases and decreases in the level of economic activity over periods of years; consists of peak, recession, trough, and expansion phases.

Real GDP

GDP adjusted for inflation; gross domestic product in a year divided by the GDP price index for that year, the index expressed as a decimal. Compare with nominal GDP.

Nominal GDP

GDP measured in terms of the price level at the time of measurement; GDP not adjusted for inflation. Compare with real gross domestic product (real GDP).

Unemployment

The failure to use all available economic resources to produce desired goods and services; the failure of the economy to fully employ its labor force.

Inflation

A rise in the general level of prices in an economy; an increase in an economy’s price level.

Modern Economic Growth

The historically recent phenomenon in which nations for the first time have experienced sustained increases in real GDP per capita.

Demographic Transition

The massive decline in birth rates that occurs once a developing country achieves higher standards of living because the perceived marginal cost of additional children begins to exceed the perceived marginal benefit.

Saving

The flow of money that is generated when personal consumption expenditures are less than disposable income. Compare with savings.

Investment

The flow of money that is generated when personal consumption expenditures are less than disposable income. Compare with savings.

Financial Investment

The purchase of a financial asset (such as a stock, bond, or mutual fund) or real asset (such as a house, land, or factories) in the expectation of financial gain.

Economic Investment

Spending for the production and accumulation of capital, additions to inventories, or the research and development of new goods or services, including funds spent on the creation of new works of music, literature, or software.

Expectations

The anticipations of consumers, firms, and others about future economic conditions.

Shocks

Sudden, unexpected changes in demand (or aggregate demand) or supply (or aggregate supply).

Demand Shocks

Sudden, unexpected changes in demand.

Supply Shocks

Sudden, unexpected changes inthe supply of goods and services.

Inventories

Goods that have been produced but remain unsold.

Inflexible Prices

Product prices that remain unchanged (at least for a while) even though supply or demand has changed; also known as sticky prices or stuck prices

Flexibles Prices

Product prices that freely move upward or downward when demand or supply changes.

national income accounting

The techniques used to measure the overall production of a country’s economy as well as other related variables.

GDP

The total market value of all final goods and services produced annually within the boundaries of a nation.

final goods and services

Products that have been purchased for final use (rather than for resale or further processing or manufacturing).

intermediate goods and services

Products that are purchased for resale or further processing or manufacturing.

Value Added

The value of a product sold by a firm less the value of the products (materials) purchased and used by the firm to produce that product.

gross output

The dollar value of the economic activity taking place at every stage of production and distribution. By contrast, gross domestic product (GDP) only accounts for the value of final output.

multiple counting

Wrongly including the value of intermediate goods in the gross domestic product; counting the same good or service more than once.

expenditures approach

The method that adds all expenditures made for final goods and final services to measure the gross domestic product.

income approach

The method that adds all the income generated by the production of final goods and final services to measure the gross domestic product.

Personal Consumption Ecpenditures (C)

The expenditures of households for both durable and nondurable consumer goods.

durable good

A consumer good with an expected life (use) of three or more years.

nondurable good

A consumer good with an expected life (use) of less than three years.

Service

An (intangible) act or use for which a consumer, firm, or government is willing to pay.

gross private domestic investment (Ig)

Expenditures that increase the nation’s stock of capital.changes in inventories; expenditures on the research and development (R&D) of new productive technologies; and money spent on the creation of new works of art, music, writing, film, and software.

net private domestic investment

Gross private domestic investment less consumption of fixed capital; the addition to the nation’s stock of capital during a year.

government purchases (G)

Expenditures by government for goods and services that government consumes in providing public services as well as expenditures for publicly owned capital that has a long lifetime; the expenditures of all governments in the economy for those final goods and final services.

Net Exports(X)

Exports minus Imports

GDP equasion.

C+I+G+X

taxes on production and imports

A national income accounting category that includes such taxes as sales,excise, business property taxes, and tariffs that firms treat as costs of producing a product and pass on (in whole or in part) to buyers by charging a higher price.

National Income

Total income earned by resource suppliers for their contributions to gross domestic product plus taxes on production and imports; the sum of wages and salaries, rents, interest, profit, proprietors’ income, and such taxes.

consumption of fixed capital

An estimate of the amount of capital worn out or used up (consumed) in producing the gross domestic product; also called depreciation.

net domestic product

Gross domestic product less the part of the year’s output that is needed to replace the capital goods worn out in producing the output; the nation’s total output available for consumption or additions to the capital stock

Personal Income (PI)

The earned and unearned income available to resource suppliers and others before the payment of personal taxes.

Disposable Icome

Personal income less personal taxes; income available for personal consumption expenditures and personal saving.

Nominal GDP

GDP measured in terms of the price level at the time of measurement; GDP not adjusted for inflation. Compare with real gross domestic product (real GDP)

Real GDP

GDP adjusted for inflation; gross domestic product in a year divided by the GDP price index for that year, the index expressed as a decimal. Compare with nominal GDP.

Price Index

An index number that shows how the weighted-average price of a “market basket” of goods changes over time relative to its price in a specific base year.

Economic Growth

(1) An outward shift in the production possibilities curve that results from an increase in resource supplies or quality or an improvement in technology; (2) an increase of real output (gross domestic product) or real output per capita.

real GDP per capita

Inflation-adjusted output per person; real GDP/population.

rule of 70

# of yearrs required to double real GDP= 70/annual percentage rate of growt

Modern Economic Growth

The historically recent phenomenon in which nations for the first time have experienced sustained increases in real GDP per capita.

leader countries

As it relates to economic growth, countries that develop and use the most advanced technologies, which then become available to follower countries.

Follower countires

As it relates to economic growth, countries that adopt advanced technologies that previously were developed and used by leader countries

Catch-Up-Growth

The rapid increases in real GDP per capita that can be achieved when a low-income follower country adopts, rather than reinvents, cutting-edge technologies that took leader countries decades to invent and implement.

Supply Factors

The four determinants of an economy’s physical ability to achieve economic growth by increasing potential output and shifting out the production possibilities curve. The four determinants are improvements in technology plus increases in the quantity and quality of natural resources, human resources, and the stock of capital goods

Demand Factors

The requirement that aggregatedemand increase as fast as potential output if economic growth is to proceed as quickly as possible.

Efficiency Factor in growth

The capacity of an economy to achieve allocative and productive efficiency and thereby fulfill the potential for growth that the supply factors(of growth) make possible; the capacity of an economy to achieve economic efficiency and thereby reach the optimal point on its production possibilities curve.

labor productivity

Total output (GDP) divided by the quantity of labor (hours of work) employed to produce it; the average product of labor, or output per hour of work.

Labor-force partipation rate

The percentage of the working-age population that is actually in the labor force.

Growth accounting

The bookkeeping of the supply-side elements such as productivity and labor inputs that contribute to changes in real GDP over some specific time period.

infrastructure

The interconnected network of large-scale capital goods (such as roads, sewers, electrical grids, railways, ports, and the Internet) needed to operate a technologically advanced economy.

Human Capital

The knowledge and skills that make a person productive.

Economies of scale

The situation when a firm’s average total cost of producing a product decreases in the long run as the firm increases the size of its plant (and, hence, its output).

information technology

New and more efficient methods of delivering and receiving information through the use of computers, Wi-Fi networks, wireless phones, and the Internet.

Start-up-firm

A new firm focused on creating and introducing a particular new product or employing a specific new production or distribution method

increasing returns

An increase in a firm’s output by a larger percentage than the percentage increase in its inputs.

Network Effects

Increases in the value of a product to each user, including existing users, as the total number of users rises.

Learning by doing

Achieving greater productivity and lower average total cost through gains in knowledge and skill that accompany repetition of a task; a source of economies of scale.

Opportunity Cost

The amount of other products that must be forgone or sacrificed to produce a unit of a given product.

Scarcity

The limits placed on the amounts and types of goods and services available for consumption as the result of there being only limited economic resources from which to produce output; the fundamental economic constraint that creates opportunity costs and that necessitates the use of marginal analysis (cost