Section 3 Vocab (pt. 2)

product markets

where goods and services are bought and sold

government spending

total expenditures on goods and services by federal, state, and local governments

financial markets

the markets (banking, stock, and bond) that channel private savings and foreign lending into investment spending, govt borrowing, and foreign borrowing

consumer price index

measures the cost of the market basket of a typical urban American family

GDP per capita

GDP divided by the size of the population, equivalent to the average GDP per person

circular flow diagram

a simplified representation of the macroeconomy

expenditure approach

an approach to calculating GDP by adding up aggregate spending on domestically produced final goods and services in the economy—the sum of consumer spending, investment spending, government purchases of goods and services, and exports minus imports

structural unemployment

unemployment that result when workers lack the skills required for the available jobs, or there are more people seeking jobs in a labor market than there are jobs available at the current wage rate

unit-of-account costs

arise from the way inflation makes money a less reliable unit of measurement

inventories

stocks of goods and raw materials held to facilitate business operations

inflation rate

the percentage increase in the overall level of prices per year

consumer spending

household spending on goods and services

disposable income

income plus government transfers minus taxes; the total amount of household income available to spend on consumption and to save

government borrowing

the amount of funds borrowed by the government in financial markets

final goods and services

goods and services sold to the final, or end, user

real income

income divided by price level to adjust for the effects of inflation or deflation

inflationary expectations

beliefs about how fast prices will rise in the future, which influence the wages workers demand and the prices firms set today

unemployment rate

the percentage of the labor force that is unemployed

efficiency wages

employers set wages higher than the equilibrium wage to incentivize hard work and reduce worker turnover

substitution bias

bias that occurs in the consumer price index because over time, items with prices that have risen more receive too much weight (because household substitute away from them) while items with prices that have risen least are given too little weight (because households shift their spending toward them)

labor union

an organized association of workers that negotiates collectively with employers over wages, benefits, and working conditions

base year

the reference year whose constant prices are used to value goods and services when calculating real GDP

factor markets

where resources (especially labor and capital) are bought and sold

private savings

[disposable income - consumer spending]

disposable income that is not spent on consumption but rather often goes into financial markets

aggregate price level

a measure of the overall level of prices in the economy

aggregate spending

the total spending on domestically produced final goods and services in the economy; the sum of consumer spending, government purchases of goods and services, and exports minus imports

menu costs

the real costs of changing listed prices

investment spending

spending on new productive physical capital, such as machinery and structures, and on changes in inventories

discouraged workers

nonworking people who are capable of working but have given up looking for a job

shoe-leather costs

the increased costs of transactions caused by inflation

market basket

a hypothetical set of consumer purchases of goods and services

aggregate output

the economy’s total production of goods and services for a given time period

economic growth

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