Macro-Econ terms mid-term 1

Terms for Mid-term I

Macroeconomics economy

concerns itself with the overall performance of the economy. The structure of economic activity in a region, country, group of countries, or around the world

Gross Domestic Product (GDP)

market value of all final goods & services produced in a nation during a particular period, usually a year

Gross World Product

market value of all final goods & services produced in the world during a given period, usually a year

Flow Variable

measure of something per period of time, such as your spending per week

Stock Variable

measure of something at a point in time, such as the amount of money you have with you right now

Mercantilism

incorrect theory that a nation’s economic objective should be to accumulate precious metals in the public treasury; this theory prompted trade barriers to cut imports, but other countries retaliated reducing trade & the gains from specialization

Expansion

period during which the economy grows as reflected by rising output, employment, income, and other aggregate measures

Contraction

period during which the economy declines as reflected by falling output, employment, income, and other aggregate measures

Depression

a severe & prolonged reduction in economic activity as occurred during the 1930s

Recession

a period of decline in economic activity lasting more than a few months, as reflected by falling output, employment, income, and other aggregate measures (officially 3 months)

Inflation

an increase in the economy’s average price level

Leading Economic Indicators

variables that predict, or lead to, a recession or recovery; examples include consumer confidence, stock market prices, business investment, & big-ticket purchases, such as automobiles & homes

Coincident Economic Indicators

variables that reflect peaks & troughs in economic activity as they occur; examples include employment, personal income, and industrial production

Lagging Economic Indicators

variable that follow, or trail, changes in overall economic activity; examples include the interest rate & the average duration of unemployment

Aggregate Output

composite measure of all final goods & services produced in an economy during a given period; real GDP

Aggregate Demand

relationship between the economy’s price level & aggregate output demanded with other things constant

Price Level

composite measure reflecting the prices of all goods & services in the economy relative to prices in a base year

Real Gross Domestic Product (Real GDP)

the economy’s aggregate output measure in dollars of constant purchasing power (adjusted for inflation)

Aggregate Demand Curve

curve representing the relationship between the economy’s price level and real GDP demanded per period, with other things constant

Aggregate Supply Curve

curve representing the relationship between the economy’s price level and real GDP supplied per period, with other things constant

Financial investment

purchase of assets in hope of reaping financial gain

Economic investment

expansion of economy’s productive capacity

Flexible prices

raw materials (could change constantly)

Inflexible (sticky)

retail & services (takes months to change price)

Federal Budget

plan for federal government outlays & revenues of a specific period, usually a year

Federal Budget Deficit

flow variable that measures the amount by which federal government outlays exceed federal government revenues in a particular period, usually a year

Demand-Side Economics

macroeconomic policy that focuses on shifting the aggregate demand curve as a way of promoting full employment & price stability

Fiscal Policies

government spending

Monetary Policies

should be used to influence the interest rates in a way that provided for full employment

Stagflation

contraction or stagnation of a nation’s output accompanied by inflation in the price level

Supply-Side Economics

macroeconomic policy that focuses on a rightward shift of the aggregate supply curve through tax cuts or other changes that increase production incentives

Expenditure Approach to GDP

calculating GDP by adding up spending on all final goods and services produced in the nation during the year

Income approach to GDP

calculator GDP by adding up all earnings from resources used to produce output in the nation during the year

Final goods & services

goods and services sold to final, or end, users

Intermediate goods & services

goods & services purchased by firms for further reprocessing and resale

Double Counting

mistake of including both the value of intermediate products & the value of final products in calculating gross domestic product; counting the same production more than once

Consumption

household purchases of final goods and services, except for new residences (houses), which count as investment (68%, but really between 63-70%)

Investment

purchase of new plants, new equipment, new buildings, & new residents, plus net additions to inventories (16%)

Physical Capital

manufactured items used to produce goods & services; include new equipment

Residential Construction

Building new homes or dwelling places

Inventories

Producers’ stocks of finished & in-process goods

Government Purchases

spending for goods and services by all levels of government, government outlays minus transfer payments (20%)

Net exports

value of a country’s exports minus the value of its imports (-4%)

Aggregate Expenditure

total spending on final goods & services in an economy during a given period, usually a year (C+I+G+X-M: Consumption+Investment+Gov. spending+Exports-Imports)

Aggregate Income

all earnings of a resource suppliers in an economy during a given period, usually a year

Value Added

at each stage of production, is the selling price of a product minus the cost of intermediate goods purchased from other firms

Disposable Income (DI)

income households have available to spend or to save after paying taxes and receiving transfer payments

Net Taxes (NT)

taxes minus transfer payments

Financial Markets

banks & other financial institutions that facilitate the flow of funds from savers to borrowers

Injection

any spending other than by households or an income other than from resource earnings; includes investments, government purchases, exports & transfer payments

Leakage

any diversion of income from the domestic spending stream; includes saving, taxes, and imports

Underground Economy

market transactions that go unreported either because they are illegal or because people involved want to evade taxes

Depreciation

value of capital stock used up to produce GDP or that becomes obsolete during the year

Net domestic product

GDP minus depreciation

Nominal GDP

GDP based on prices prevailing at the time of production

Base Year

year with which other years are compared when constructing an index; the index equals 100 in the base year

Price Index

number that shows the average price of products; changes in a price index over time show changes in the economy’s average price level

Consumer Price Index (CPI)

measure of inflation based on the cost of a fixed market basket of goods and services. GDP

Chain-weighted System

inflation measure that adjusts the weights from year to year in calculating a price index, thereby reducing the bias caused by a fixed-price weighting system

Production

process that transforms resources into goods & services

Productivity

ratio of a specific measure of output, such as real GDP, to a specific measure of input, such as labor, in this case productivity measures real GDP per hour of labor

Labor productivity

output per unit of labor; measured as real GDP divided by the hours of labor employed to produce that output

Per-worker production function

relationship between the amount of capital per worker in the economy & the average output per worker

Capital deepening

increase in the amount of capital per worker; one source of rising labor productivity

Rules of the game

the laws, customs, manners, conventions, and other institutional elements that determine transaction costs & thereby affect people’s incentive to undertake production & exchange

Industrial market countries

economically advanced capitalist countries of Western Europe, North America, Australia, New Zealand, and Japan, plus the newly industrialized Asian economies of Taiwan, South Korea, Hong Kong, and Singapore

Developing countries

countries with a lower living standard because of less human & physical capital per worker

Basic Research

search for knowledge without regard to how that knowledge will be used

Applied Research

research that seeks answers to particular questions or to apply scientific discoveries to develop specific products

Industrial Policy

view that government- using taxes, subsidies, tariffs, & regulations- should nurture the industries & technologies of the future, thereby giving these domestic industries an advantage over foreign competition

Productivity

quantity of goods & services produced from each unit of labor input

-an economy’s income is an economy’s output

Physical Capital

stock of equipment & structures that are used to produce goods & services

Human Capital

knowledge & skills that workers acquire through education, training, & experience

Natural Resources

inputs into the production of goods & services that are provided by nature, such as land, rivers, & mineral deposits

Technical Knowledge

society’s understanding of the best ways to produce goods & services

World Bank

Human Capital & Rule of Law constitute the largest share of wealth in virtually all countries

World Bank

good schools & the rule of law are the keys to successful development

Society’s Standard of Living

depends on its ability to produce goods and services

Productivity

depends on physical capital per worker, human capital per worker, natural resources per worker & technological knowledge

Diminishing Returns

the property whereby the benefit from an extra unit of an input declines as the quantity of the input increases

Catch-Up Effect

the property whereby countries that start off poor tend to grow more rapidly than countries that start off rich (currently rich actually)

Foreign Direct Investment

capital investment that is owned & operated by a foreign entity

Foreign Portfolio Investment

investment that is financed with foreign money but operated by domestic residents (more favorable)

body mass index

describe what happens overtime

Property rights

people’s ability to exercise authority over the resources they own

Inward-oriented policies

attempt to increase productivity & living standards within the country by avoiding interaction with the rest of the world (Infant-Industry Argument)

Outward-oriented policies

international trade in goods & services can improve the economic wellbeing of a country’s citizens

Patent system

encourages research as well (exclusive right to produce a product for a number of years), lasts 20 yrs on avg

positive check

bad things, if it goes unchecked the population growth will check in

preventative check

people should postpone getting married until later

Labor Force

those 16 years of age & older who are either working or looking for work

Unemployment Rate

number unemployed as a percentage of the labor force

Discouraged Workers

those who drop out of the labor force in frustration because they can’t find work

Labor Force Participation Rate

the labor force as a percentage of the adult population

Long-term Unemployment

those looking for work for 27 weeks or longer

Frictional Unemployment

unemployment that occurs because job seekers & employers need time to find each other

Seasonal Unemployment

unemployment caused by seasonal changes in the demand for certain kinds of labor

Structural Unemployment

unemployment because 1) the skills in demand do not match those of the unemployed, or 2) the unemployed do not live where the jobs are

Cyclical unemployment

unemployment that fluctuates with the business cycle, increasing during contractions & decreasing during expansions