Principles of Economics - Practice Final Exam Review

A collection of vocabulary flashcards derived from lecture notes on Principles of Economics, focusing on key concepts necessary for exam preparation.

Circular-flow diagram

A model that describes how households and firms interact in the economy, showing the flow of goods, services, and money.

GDP (Gross Domestic Product)

The total monetary value of all final goods and services produced within a country's borders in a specific time period.

CPI (Consumer Price Index)

A measure that examines the weighted average of prices of a basket of consumer goods and services, used to identify inflation.

Real interest rate

The nominal interest rate adjusted for inflation, reflecting the true cost of borrowing.

Nominal GDP

The market value of all final goods and services produced in a country in a given year, valued at current prices.

Real GDP

The inflation-adjusted measure that reflects the value of all goods and services produced in a country in a given year.

Cyclical unemployment

Unemployment that occurs due to economic downturns, typically rising during periods of recession.

Efficiency Wage Theory

The theory that higher wages can lead to greater worker productivity, as employees feel more secure and are less likely to leave their jobs.

Labor-force participation rate

The percentage of the working-age population that is either employed or actively seeking employment.

Inflation rate

The percentage increase in prices of goods and services over a specified period.

Underemployment

A situation in which workers are employed but not in their desired full-time positions, or are working in jobs that don't utilize their skills.

Hidden unemployment

Unemployment that is not reflected in official statistics, often including discouraged workers who have stopped looking for work.

Circular-flow diagram

A model that describes how households and firms interact in the economy, showing the flow of goods, services, and money.

GDP (Gross Domestic Product)

The total monetary value of all final goods and services produced within a country's borders in a specific time period.

CPI (Consumer Price Index)

A measure that examines the weighted average of prices of a basket of consumer goods and services, used to identify inflation.

Real interest rate

The nominal interest rate adjusted for inflation, reflecting the true cost of borrowing.

Nominal GDP

The market value of all final goods and services produced in a country in a given year, valued at current prices.

Real GDP

The inflation-adjusted measure that reflects the value of all goods and services produced in a country in a given year.

Cyclical unemployment

Unemployment that occurs due to economic downturns, typically rising during periods of recession.

Efficiency Wage Theory

The theory that higher wages can lead to greater worker productivity, as employees feel more secure and are less likely to leave their jobs.

Labor-force participation rate

The percentage of the working-age population that is either employed or actively seeking employment.

Inflation rate

The percentage increase in prices of goods and services over a specified period.

Underemployment

A situation in which workers are employed but not in their desired full-time positions, or are working in jobs that don't utilize their skills.

Hidden unemployment

Unemployment that is not reflected in official statistics, often including discouraged workers who have stopped looking for work.

Frictional unemployment

Unemployment that occurs when people are voluntarily between jobs, searching for new ones, or are new entrants into the workforce.

Structural unemployment

Unemployment resulting from a mismatch between the skills workers possess and the skills demanded by employers, often due to technological changes or shifts in industry.

Components of GDP

GDP is calculated as the sum of Consumption (C), Investment (I), Government Spending (G), and Net Exports (NX), represented as GDP = C + I + G + NX.

Deflation

A general decline in prices for goods and services, often associated with a decrease in the money supply and credit within an economy.