Studied by 455 peopleCircular flow
a model that shows the interaction between households and firms in a free market economy
Household
a person or group of people living in a single residence
firm
an organization that uses resources to produce a product or service, which it then sells
Product market
where households buy the goods and services that firms produce
Factor market
where firms purchase the factors of production (land, labor, capital and entrepreneurship) from households.
Gross Domestic Product
the total value of all final goods and services produced in a country in a given year
Consumption
measures the purchases of final goods and services by households
Investment
measures the purchases of final goods and services by firms
Intermediate goods
goods that are used in the production of other final goods. They are not counted in the GDP
Transfer payments
Government collects taxes from households and businesses. Some of that money goes to programs that directly pay people benefits. This is not counted in GDP because nothing is bought or sold, it is just transferring money from one part of the economy to another.
Non
market Activities
Underground economy
includes transactions that are not reported to the government. For example, cash transactions without a receipt or illegal activities. These are no included in the GDP
expansion
a period of economic growth as measured by a rise in real GDP
recession
a period of significant economic decline lasting six months or more
leading indicators
a set of key economic variables that economists use to predict future trends in a business cycle
real GDP per capita
real GDP divided by the total population of a country
unemployment rate
the percentage of a nation’s labor force that is unemployed
civilian labor force
all nonmilitary people who are employed or unemployed
Frictional unemployment
People who quit their jobs, laid
Structural unemployment
occurs when workers skills do not match those needed for the jobs that are now available.
Cyclical unemployment
occurs during a contraction in the business cycle. Caused when there is not enough demand for the goods and services workers would have produced.
Seasonal unemployment
Occurs when industries slow or shut down for a season or make seasonal shifts in their production schedules. (ex. Construction workers in the winter, ski instructors in the summer, etc.)
discouraged workers
someone who wants a job but has given up looking
inflation
a general increase in prices across an economy
price index
a measurement that shows how the average price of a standard group of goods changes over time
inflation rate
the percentage rate of change in price level over time
fixed income
income that does not increase even when prices go up
deflation
a sustained drop in the price level
Note 
Flashcard (34)