Unit 2 Exonomic Indicators and the Business Cycle

Fill-in-the-blank flashcards covering key terms and definitions from the lecture notes on households, firms, GDP, and related concepts.

The stage of the economies business cycle that marks the end of a period of declining business activity and the transition to expansion.

Trough

Households

A person/group of people who share an income and sell factors and buy goods.

Firms

Buy factors and sell goods.

Factors Of Production

Are used to make goods and are sold by households and bought by firms.

Goods And Services

Are made out of factors and are sold by firms and bought by households.

Product Markets

Are where goods and services are bought and sold.

Factor Markets

Are where resources, especially capital and labor, are bought and sold.

The Circular Flow Model

Traces money and goods through a simplified economic model; money flows counterclockwise; households on top, firms on bottom; product markets on left, factor markets on right.

Gross Domestic Product

Is the total value of all final goods and services produced in the economy during a given year.

Private Savings

Is disposable income not used in consumption.

The GDP equation is:

GDP = C+I+G+Xn

Consumer Spending (C)

Is household spending on goods (durable and nondurable) and services.

Investment Spending (I)

Includes all final purchases of machines, equipment, and tools by businesses, all construction, and changes to business inventories.

Government Spending (G)

Is spending by all levels of government, including direct purchases of resources (including labor).

Net Exports (Xn)

Equals Exports (X) minus Imports (IM). Spending on all goods produced in the country minus domestic spending on all goods produced in other countries.

Intermediate Goods And Services

Are goods and services bought from one firm by another to be used as inputs into the production of final goods and services.

Not included in calculating GDP

Input, Intermediate goods and service services, Used good, Stock and bonds, Foreign produce goods and service, Transfer payments

Disposable Income

Is the total amount of household income available to spend on consumption and to save.

Real GDP

Is the total value of all final goods and services produced in the economy during a given year, calculated using the prices of a selected base year. Adjusts for inflation.

Nominal GDP

Is the total value of all final goods and services produced in the economy during a given year, calculated with the prices current in the year in which the output is produced. Doesn't adjust for inflation.

Labor Force Participation Rate

(\text{Labor force})/(\text{Population age 16+}) \times 100

Employment

Is the number of people currently employed in the economy.

Unemployment

Actively looking for work but aren’t currently employed.

Unemployment rate

(\text{Number Of employed workers})/(\text{Labor force}) \times 100

Labor force

Some of unemployed and employed

Discouraged workers

Non working people who are capable of working but have given up looking for a job due to state of the job market. Not considered Unemployed.

Marginally attached workers

Would like to be employed and have look for a job in recent past, but aren’t currently looking for work. Different than discouraged because they just stop looking. Not considered Unemployed.

Underemployed

People who work part-time because they cannot find full-time work. They may also be overqualified or cannot find a pay rate they want. Not considered unemployed.

Relationship between unemployment rates, and economic conditions

If economy grows, unemployment decreases. If economy goes into a recession, Unemployment increases.

Frictional unemployment

Unemployment due to the time workers spend in job search.

Structural unemployment

Unemployment that results when there are more people seeking jobs in a labor market than there are jobs available at the current wage rate. Due to shortages of jobs in certain areas that don’t match laborers, qualifications, wage rate (Efficiency and minimum), Or government policies.

Natural rate of unemployment

The unemployment rate that rises from the effects of frictional plus structural unemployment.

Cyclical unemployment

The deviation of the actual rate of unemployment from the natural rate. Occurs during an economic downturn.

Efficiency wages

Wages that employers sit above the equilibrium wage rate as inefficient for better employee performance. Similarly to minimum wage, drives up unemployment.

Actual rate of unemployment

Natural Rate + Cyclical rate. Total rate of unemployment.

Shoe leather cost

The increased cause of transactions caused by inflation. More transactions occur because the opportunity cost of holding money increases. EX: money, wasted on gas, time wasted spending money

Menu cost

Rio cost of changing listed prices to adjust for new, inflation cost Prices. EX: time spent printing and labeling Goods.

Unit of account cost

Arise from the way, inflation makes money a less reliable unit of measurement. Uncertainty in how money is spent on resources because of how inflation causes price levels to change, leading to inefficient decisions.

Inflation

An increase in price level.

Deflation

A decrease In price level.

Disinflation

A slowing of the inflation rate.

Hyperinflation

Extremely high and dangerously out of control inflation.

Nominal interest rate

Interest rate actually paid for a loan.

Rio interest rate

Nominal interest rate minus rate of inflation.

Consumer price index

Most commonly used method of measuring inflation in US. (\text{Cost of Market Basket in the given year}) / (\text{Cost of Market Basket in base year}) \times 100 = \text{Price index of a given year}

Market Basket

A hypothetical set of consumer purchases of goods and services.

Inflation rate formula

(\text{Price index in year 2 - Price index in year 1}) / (\text{Price index in year 1}) \times 100

Nominal VS. Real wages

Nominal is the amount paid, in real justice the inflation.

Effects of recession

Real GDP decreases an unemployment increases.

Business cycle

The short run alternative between economic downturn, known as recession, and economic upturn, known as expansions

Depression

A very deep and prolonged downturn

Recession

Period of economic downturn when output and unemployment are feeling.

Expansions (Recoveries)

Periods of economic terms with output and employment or rising.

Output

The quantity of goods and services produced.

Aggregated output

The economies, total production of good and services for given time period.

Price stability

Wendy aggregated price level is changing slowly

Economic growth

An increase in the maximum amount of goods and services in economy can produce

Model

A simplified presentation used to better understand a real life situation

Peak

The highest point between the end of an economic expansion expansion and the start of a contraction in business cycle; the peak of the cycle refers to the last month before several key economic indicator, such as employment and new housing starts, begin to fall; it is at this