ECON 10B Midterm Definitions

Potential Workers

Civilian noninstitutional population aged 16+ who are not on active military duty or living in restricted mobility institutions (e.g., prisons or long-term care).

Employed Potential Workers

Potential workers who currently hold a paid full-time or part-time job during the survey reference period.

Unemployed Potential Workers

Potential workers who do not have a job, are currently available for work, and have actively looked for work in the previous four weeks.

Not in Labor Force

Potential workers who neither have a job nor are actively looking for work (e.g., retirees, full-time students, homemakers).

Labor Force

The total sum of employed and unemployed potential workers in an economy (Labor Force = Employed + Unemployed).

Labor Force Participation Rate (LFPR)

The percentage of potential workers who are active members of the labor force ([Labor Force / Potential Workers] * 100).

Unemployment Rate

The percentage of the total labor force that is unemployed ([Unemployed / Labor Force] * 100).

Marginally Attached Workers

Potential workers who want and are available for work, looked for work in the past 12 months, but have not looked in the previous 4 weeks.

Discouraged Workers

Marginally attached workers who have stopped looking for a job because they specifically believe no jobs are available for them.

Employed Part-Time for Economic Reasons

Workers who want and are available for full-time work but have settled for part-time hours due to slack economic conditions.

Job Openings

The total number of open, unfilled positions in firms on the last business day of the month.

Job Openings Rate

The percentage of all available jobs (filled and unfilled) that remain open ([Job Openings / (Employment + Job Openings)] * 100).

Hires Rate

The percentage of current employment consisting of new additions to the payroll during the month ([Hires / Employment] * 100).

Separations Rate

The percentage of employment that ends during the month through quits, layoffs, or retirements ([Separations / Employment] * 100).

Quits Rate

The percentage of total employment ending via voluntary separations initiated by employees ([Quits / Employment] * 100).

Layoffs and Discharges Rate

The percentage of employment ending via involuntary separations initiated by employers ([Layoffs & Discharges / Employment] * 100).

Voluntary Unemployment

Joblessness among workers who choose not to accept jobs at the market-clearing equilibrium wage, preferring to search at a higher wage.

Involuntary Unemployment

Joblessness among potential workers who are willing and able to work at the prevailing equilibrium wage but cannot find a job.

Frictional Unemployment

Involuntary unemployment caused by the time and search frictions required for workers and firms to match suitable skills and vacancies.

Structural Unemployment

Involuntary unemployment resulting from persistent wage rigidity that holds real wages above the market-clearing equilibrium level.

Wage Rigidity

The condition where wages fail to adjust downward to clear the labor market, causing a persistent excess supply of labor.

Efficiency Wages

Wages deliberately set above the market-clearing level by employers to increase productivity, reduce turnover, and boost morale.

Downward Wage Rigidity

The resistance of workers to pay cuts, leading firms to hold nominal wages fixed and rely on layoffs rather than wage reductions during downturns.

Natural Rate of Unemployment

The long-run rate of unemployment normal to an economy, consisting of the sum of frictional and structural unemployment.

Cyclical Unemployment

Short-run deviations of the actual unemployment rate from its natural rate, rising during recessions and falling during expansions.

Gross Domestic Product (GDP)

The total market value of all final goods and services produced within a country's geographic boundaries during a specific time period.

Gross Domestic Income (GDI)

The total income paid out to all factors of production (labor wages, capital profits, rents) within an economy during a given time period.

Statistical Discrepancy

The minor statistical difference between GDP (measured via output/expenditure) and GDI (measured via factor income).

Gross National Product (GNP)

The total market value of final goods and services produced by factors of production owned by domestic residents, regardless of geographic location.

Value Added

The market value of a firm's output minus the market value of the intermediate inputs it purchased from other firms.

Nominal GDP

Total economic output valued using current-period market prices, combining changes in physical volume and price changes.

Real GDP

Total economic output valued using constant base-year prices, isolating changes in physical production volume from inflation.

GDP Deflator

A broad measure of price levels reflecting changes in prices of all domestically produced goods and services ([Nominal GDP / Real GDP] * 100).

Consumer Price Index (CPI)

A price index measuring the average cost of a fixed market basket of goods and services purchased by a typical urban household.

Producer Price Index (PPI)

A price index measuring the average change in selling prices received by domestic producers for their output.

Inflation Rate

The annual percentage change in a specified price index (CPI or GDP Deflator) over time ([Index_t - Index_{t-1}] / Index_{t-1} * 100).

Regional Price Parity (RPP)

A price index measuring regional price level differences across geographic areas relative to the national average (US = 100).

Human Development Index (HDI)

A composite UN metric assessing well-being based on health (life expectancy), knowledge (schooling), and living standards (GNI per capita).

Market for Loanable Funds

The financial market where savers supply funds and borrowers demand capital, establishing the equilibrium real interest rate.

Nominal Interest Rate

The annual stated percentage return earned on financial savings or paid on a loan unadjusted for inflation.

Real Interest Rate

The nominal interest rate corrected for inflation, reflecting the true growth in purchasing power of saved or borrowed funds.

Fisher Equation

The fundamental relation stating that the real interest rate approximately equals the nominal interest rate minus inflation (r ≈ i - w).

Net Taxes (Government Revenue)

Total government revenue calculated as tax collections minus transfer payments (T = Tax Revenue - Transfers).

Private Saving

Household disposable income remaining after accounting for tax payments and consumption expenditure (S_private = Y - T - C).

Public Saving

Government net tax revenue remaining after subtracting government purchases (S_public = T - G).

National Saving

Total domestic saving in an economy, equal to the sum of private saving and public saving (S = Y - C - G).

Budget Deficit

The fiscal status when government spending exceeds net tax revenues (G > T), resulting in negative public saving.

Budget Surplus

The fiscal status when government net tax revenues exceed spending (T > G), resulting in positive public saving.

Government Debt

The cumulative total of past annual budget deficits financed through government borrowing in bond markets.

Crowding Out

The reduction in private investment spending caused by higher real interest rates when government borrowing absorbs loanable funds.

Financial Intermediaries

Institutions such as commercial banks and mutual funds that channel loanable funds indirectly from savers to borrowers.

Stockholders' Equity

The net value of a financial institution or bank equal to total assets minus total liabilities.

Economic Growth

The persistent long-run increase in an economy's real GDP per capita over time.

Exponential Growth

A growth pattern where a variable increases at an approximately constant percentage rate, causing larger absolute increases over time.

Rule of 70

A formula estimating doubling time in years for an exponentially growing variable by dividing 70 by the percentage growth rate (70 / g).

Sustained Growth

A long-term economic pattern where real GDP per capita grows at a positive and stable rate over extended historical periods.

Catch-Up Growth

Accelerated economic growth experienced by developing nations taking advantage of technologies pioneered in advanced nations.

Malthusian Model

A historical theory postulating that population growth naturally absorbs output gains, keeping per capita income near subsistence levels.

Demographic Transition

The historical shift from high birth and death rates to low birth and death rates accompanying economic modernization.

Research and Development (R&D)

Investments made by firms, universities, and governments to expand the base of technological knowledge and innovation.

Solow Growth Model

A foundational macroeconomic framework modeling long-run GDP levels and growth via capital accumulation, saving, and technological change.

Steady-State Equilibrium

The long-run dynamic state in the Solow model where investment exactly equals capital depreciation (I* = d * K*), stabilizing capital stock.

Dynamic Equilibrium

The specific path that economic variables like physical capital stock and GDP follow through time toward steady state.

Total Factor Productivity (TFP)

The residual measure of technology (A) in an aggregate production function reflecting how efficiently labor and capital are combined.

Growth Accounting

An empirical procedure decomposing GDP growth into contributions from physical capital, human capital, and technology.

Proximate Causes of Prosperity

Direct production inputs—such as human capital, physical capital, and technology—that account for high GDP levels without explaining why inputs exist.

Fundamental Causes of Prosperity

Underlying factors—geography, culture, and institutions—that shape incentives and determine a society's accumulation of production inputs.

Institutions Hypothesis

The theory asserting that differences in formal and informal societal rules (institutions) cause long-run disparities in prosperity.

Economic Institutions

The legal and regulatory frameworks governing economic transactions, property rights, contracts, and market entry.

Inclusive Economic Institutions

Institutions that enforce property rights, maintain rule of law, support contracts, and encourage broad market participation.

Extractive Economic Institutions

Institutions designed by ruling elites to extract income and wealth from the rest of society while restricting economic freedom.

Creative Destruction

The process by which economic progress and new technologies continuously displace existing businesses, technologies, and jobs.

Productivity

The amount of real GDP produced per unit of labor input, typically measured as output per worker (Y/L) or output per hour worked (Y/l).

Human Capital

The stock of knowledge, skills, education, and health acquired by workers through schooling and training.

Total Efficiency Units of Labor

The overall productive capacity of the labor force, calculated as the total number of workers multiplied by average human capital (H = L * h).

Physical Capital

The total stock of equipment, structures, and tools used by workers to produce goods and services.

Technology

The state of knowledge and production efficiency enabling an economy to transform capital and labor inputs into output.

Law of Diminishing Marginal Product

The economic principle stating that adding more units of a single input (like capital), keeping others fixed, yields progressively smaller marginal increases in output.

Cobb-Douglas Production Function

A specific functional form of aggregate production where output depends on capital and labor with constant factor income shares (e.g., Y = A * K^(1/3) * H^(2/3)).