Ch.5 econ

Microeconomics

Examines the functioning of individual industries and individual decision-making units like firms and households.

Macroeconomics

Deals with the economy as a whole, focusing on total national income, aggregates, and the overall price level.

Aggregate behavior

The behavior of all households and firms together.

Sticky prices

Prices that do not always adjust rapidly to maintain equality between quantity supplied and demanded.

Major macroeconomic concerns

growth rate of aggregate output, unemployment, and inflation/deflation.

Business cycle

The cycle of short-term ups and downs in the economy.

Aggregate output

The total quantity of goods and services produced in an economy in a given period.

Expansion or boom

The period in the business cycle from a trough up to a peak where output and employment grow.

Contraction, recession, or slump

The period in the business cycle from a peak down to a trough where output and employment fall.

Depression

A prolonged and deep recession.

Unemployment rate

The percentage of the labor force that is unemployed.

Inflation

An increase in the overall price level.

Hyperinflation

A period of very rapid increases in the overall price level.

Deflation

A decrease in the overall price level.

Four components of the macroeconomy

Households, firms, the government, and the rest of the world.

Circular flow

A diagram showing the flows in and out of the sectors in the economy.

Transfer payments

Cash payments made by the government without goods, services, or labor in exchange (e.g., Social Security).

Three market arenas

Goods-and-services market, labor market, and money (financial) market.

Treasury bonds, notes, or bills

Promissory notes issued by the federal government when it borrows money.

Corporate bonds

Promissory notes issued by corporations when they borrow money.

Shares of stock

Financial instruments giving the holder a share in firm ownership and profits.

Dividends

The portion of a firm's profits paid out each period to its shareholders.

Fiscal policy

Government policies concerning taxes and spending.

Monetary policy

Tools used by the Federal Reserve to control short-term interest rates.

Great Depression

The period of severe economic contraction and high unemployment beginning in 1929.

Fine-tuning

Walter Heller's term for the government's role in regulating inflation and unemployment.

Stagflation

A situation of both high inflation and high unemployment.