economic indicators

economic indicators

statistics that help economists judge the health of an economy

gross domestic product (GDP)

market value of all final goods and services produced within a country during a given period of time

real GDP

measure of a country’s economic output valued in constant dollars (reflects effects of inflation)

nominal GDP

a measure of a country’s economic output (GDP) valued in current dollars (does not reflect the effects of inflation)

per capita GDP

a nation’s real GDP / by its population (measure of average economic output per person)

unemployment rate

the percentage of the labor force that is not employed but is actively seeking work

labor force

all people age 16 and older who are classified as either employed or unemployed

cyclical unemployment

unemployment that results from a period of decline in the business cycle; caused by a contraction

frictional unemployment

unemployment that results when workers are seeking their first job or have left one job and are seeking another

seasonal unemployment

unemployment that results when businesses shut down or slow down for part of the year, often because of weather

structural unemployment

unemployment that results when demand for certain skills declines (due to technology or increased foreign competition)

inflation rate

the percentage increase in average price level of foods and services from one month or year to the next

consumer price index (CPI)

measure of price changes in consumer goods and services (shows changes in cost of living over time)

creeping inflation

a gradual, steady rise in the price of goods and services over time

hyperinflation

deflation

a fall in the price of goods and services; the opposite of inflation

demand pull inflation

a rise in the price of goods and services caused by an increase in o real demand

cost push inflation

a rise in the price of goods and services caused by increases in the cost of the factors of production

wage-price spiral

an upward trend in wages and prices; rising prices lead to demands for higher wages causing producers to raise prices further and workers to demand increased wage

recession

period of declining national economic activity, usually measured as a decrease in GDP for at least two consecutive quarters

depression

prolonged economic downturn characterized by plunging real GDP and extremely high unemployment

contraction

general economic decline marked by failing GDP and raising unemployment

natural rate of unemployment

percentage of the labor force w/o work when economy is @ full employment (economy is string + no cyclical unemployment)

hyperinflation

when the prices of goods and services rise more than 50% per month

expansion

a period of economic growth

contraction

a period of general economic decline marked by falling GDP and rising unemployment

leading economic indicators

measures that consistently rise or fall several months before an expansion a contraction begins

lagging economic indicators

measures that consistently rise or fall several months after an expansion or contraction begins

coincident indicators

measures that consistently rise or fall along with expansions or contractions

business cycle

recurring pattern of growth and decline in economic activity over time

cost of living index

cost of living index, measures overall cost of goods and services (CPI)

real cost of living

cost in constant dollars of all the basic goods and services needed by the average consumer (nominal cost of living adjusted for inflation)

price index

measure of the average change in price of a type of good over time

expenditure approach

calculating GDP by adding the amount spent on final goods and services w/n an economy during a particular period

income approach

any method of converting an income stream into an indicator of market value

peak

the highest point of an expansion, or period of economic growth; a peak is followed by economic decline

trough

the lowest point of a contraction, or period of economic decline (followed by economic growth)

market basket

selection of goods and services that are consistently purchased and sold throughout an economic system

fiscal policy

gov’t policy regarding taxing and spending

monetary policy

central bank policy aimed at regulating the amount of money in circulation

Keynesian economics

government intervention in the economy is necessary to ensure economic stability; support demand-side policies to revive economic growth

misery index

the sum of the inflation rate and the unemployment rate

classical economics

focused on how free marks and market economics work; held that capitalism was self-regulating and required few government controls

expansionary fiscal policy

designed to promote economic activity by increasing government spending, cutting taxes, or both

contractionary policy

policy designed to lower inflation and cool an overheated economy by cutting government spending, increasing taxes, or both

demand-side economics

best way to ensure economic growth is to stimulate demand by putting more money in the hands of consumers (increasing government spending or cutting taxes on lower-earners or both). assumes consumers will spend additional money on G&S

supply side economics

best way to ensure economic growth is to stimulate overall supply by cutting taxes on businesses and high-income taxpayers; assumes producers and investors will use their tax savings to expand production

laffer curve

U-shaped graph associated with supply-side economics that shows a theoretical correlation between tax rates and tax revenues. according to graph, raising marginal tax rates beyond a certain point reduces tax revenues

multiplier effect

ripple effect in which a change in spending by one person or business leads to additional changes in spending by another person or business

automatic stabilizer

a fiscal tool thay helps counter swings in the business cycle without direct action by the government (e.g., transfer payments and taxes that help stimulate or limit overall demand and stabilize the economy)

easy money policy

monetary policy designed to accelerate the rate of growth of the money supply in order to stimulate economic growth

tight money policy

designed to slow the rate of growth of the money supply in order to reduce inflation

reserve requirement

regulation that requires banks to keep a certain percentage of deposits on hand at all times to repay their depositors

open market operations (FOMC)

the purchase and sale of gov’t bonds by the federal reserve for the purpose of regulating the money supply and controlling interest rates

required reserve ratio

the minimum percentage of deposits that banks must keep in reserves at all times+

crowding-out effect

the possible effect of increased gov’t borrowing in businesses and consumers; drives interest rates up, high lvls. of gov’t borrowing may crowd private borrowers out of the lending market

deficit spending

gov’t spending in excess of what is collected in revenues

discount rate

the interest rate the federal reserve charges on loans to private banks

monetarism

school fo thought, based on ideas of milton friedman, holding that changes in the money supply are the main cause of inflation and of economic expansions or contractions

monetary policy

central bank policy aimed at regulating the amount of money in circulation

stagflation

a combination of economic stagnation and high inflation; features include slow or zero economic growth, high unemployment, and rising prices

debt

something owed

time lag

a delay between an economic action and a consequence

board of governors

federal gov’t agency that regulates banks, contributes to the nation’s monetary policy, and oversees the activities of reserve banks

federal reserve system

the central bank of the united states

money supply

the total amount of money in circulation

functions of moneh

store of value, unit of account, and medium of exchange

discretionary fiscal policy

the government actively making a change to spending or taxes

non discretionary fiscal policy

permanent spending or taxation laws already on the books that regulate the economy

aggregate demand

term used in macroeconomics to describe the total demand for goods and produced domestically, including consumer goods, services, and capital goods