Economic Keywords

What is GDP?

The value of all final goods and services produced domestically in a year

What is nominal GDP?

GDP measured in current prices (not adjusted for inflation)

What is real GDP?

GDP adjusted for inflation’ measures actual output

What does the GDP Deflator do?

The overall price level of all goods and services in GDP

What does the Consumer Price Index (CPI) measure?

The cost of a fixed basket of consumer goods

What is inflation?

A rise in the general price level

What is hyperinflation?

Extremely high inflation

What is deflation?

A fall in the general price level

Who is in the labor force?

Employed + unemployed actively looking for work

How is the unemployment rate calculated?

Unemployment ÷ labor force × 100

What is frictional unemployment?

Occurs when people are between jobs or searching for new ones

What is cyclical unemployment?

Caused by downturns in the business cycle (recessions)

What is structural unemployment?

A mismatch between worker skills and job requirements

What does the natural rate of unemployment include?

Frictional + structural unemployment (not cyclical)

What is aggregate demand (AD)?

Total spending (C + I + G + NX) at different price levels

What is aggregate supply (AS)?

Total output firms choose to produce at different price levels

What do Keynesians believe drives the economy in the short run

Aggregate demand

What do neoclassical economists emphasize?

Aggregate supply and long-run growth

What does Say’s Law state?

“Supply creates its own demand”

What is Fiscal Policy?

Government spending and taxation decisions

What is monetary policy?

Fed actions affecting interest rates and the money supply

What are open market operations?

Fed buying or selling government bonds

What does expansionary monetary policy do?

Lowers interest rates, increases money supply

What does contractionary monetary policy do?

Raises interest rates, decreases money supply

What is included in M1?

Cash + checking deposits

What is included in M2?

M1 + savings deposits + money market funds

What is an exchange rate?

Price of one currency in terms of another

What does currency appreciation mean?

The currency becomes stronger relative to others

What does currency appreciation mean?

The currency becomes stronger relative to others

What does currency depreciation mean?

The currency becomes weaker relative to others

What is comparative advantage?

Producing a good at a lower opportunity cost

What is absolute advantage?

Ability to produce more output with the same resources

What is a tariff?

A tax on imported goods

How is trade balance calculated?

Exports - Imports

What is Gross National Product (GNP)?

The total value of all final goods and services produced by a country's residents, regardless of their location.

What is the labor force participation rate?

Percentage of the working-age population that is employed or actively looking for work

What is a GDP Deflator?

A measure of the price level that adjusts nominal GDP to reflect real GDP, indicating how much of the change in GDP is due to changes in price.

What is Discretionary fiscal policy?

Government- chosen changes in spending or taxes to influence the economy

What are automatic stabilizers?

Policies that automatically react to economic changes (e.g. unemployment benefits)

What is crowding out?

When government borrowing raises interest rates and reduces private investment spending

What is budget surplus?

When government revenue is greater than government spending

Debt vs. Deficit

Deficit: Annual overspending

Debt: Total of all past deficits

Monetary policy lag

The delay between a monetary policy change and its full economic impact