Econ from Hell

market economy

an economy in which the decision of households and firms interacting in markets allocate economic resources.

economic efficiency

about maximizing total surplus and returns

economic equity

distributing everything fairly

normative analysis

analysis concerned with what ought to be

positive analysis

analysis concerned with what is, examines economic consequences of a policy

normative analysis

analysis concerned with what ought to be, determines whether a policy should be used

frictional unemployment

short term unemployment that happens when people are between jobs or newly entering the workforce ex: graduating from school and looking for a first job

structural employment

unemployment caused by a mismatch between workers’ skills and the skills employers need, caused by technological change, long-term changes in economies, jobs moving to different regions or countries,

cyclical unemployment

unemployment caused by economic downturns or recessions

full employment

the economy is operating at a level where all available workers are employed except for normal, unavoidable unemployment

unemployment doesn’t fall to zero…

would cause problems (employers need to take time to find right employees, people constantly changing jobs, ect)

3 common price indices

GDP deflator, CPI, PPI

labor productivity

a measure of how much output a worker produces in a given amount of time

labor productivity to standard of living

higher labor allows firms to produce more goods and services, higher wages, higher income means ppl consume more, standard of living rises

central planned economy

government decides what to produce, how much, and at what price

mixed economy

economy in which most economic decisions result from the interaction of buyers and sellers in markets but in which government plays a significant role in the allocation of resources (US)

free market economy

individuals and firms decide what to produce how to produce it, and for who

fiscal policy

what government decides to do abt spending and taxes

monetary policy

interest rates, money supply (Federal Reserve)

inventories rise…

at the beginning of a recession fall at the beginning of expansion

inventory

goods produced but not yet sold

major factors affecting long-term growth of the economy’s output

population growth and average labor productivity