ECON103: Final Summary

A set of flashcards summarizing key terms and concepts in macroeconomics and national income.

Macroeconomics

The study of the economy as a whole, focusing on issues like income growth, price levels, unemployment rates, and the financial system.

Endogenous variables

Variables whose values are determined within the model.

Exogenous variables

Variables whose values are determined by factors outside the model.

Gross Domestic Product (GDP)

Measures both total income and total expenditure on the economy’s output of goods and services.

Nominal GDP

GDP that values output at current prices.

Real GDP

GDP that values output at constant prices.

Consumer Price Index (CPI)

Measures the price of a fixed basket of goods purchased by a typical consumer.

GDP deflator

The ratio of nominal GDP to real GDP, used to measure the overall level of prices.

Natural rate of unemployment

The long-run average or “steady state” rate of unemployment.

Frictional unemployment

Unemployment that results from the time required to match workers with jobs.

Structural unemployment

Unemployment that arises from wage rigidity, keeping real wages above the equilibrium level.

IS-LM model

A model showing the relationship between interest rates and real output in the goods and services market and the money market.

Velocity

The ratio of nominal expenditure to the money supply, indicating the rate at which money changes hands.

Quantity theory of money

A theory that states the money growth rate determines the inflation rate in the long run.

Fisher effect

The concept that the nominal interest rate moves one-for-one with expected inflation.

Hyperinflation

Rapid money supply growth leading to extreme rises in price levels, often due to government budget deficits.

Creative destruction

A concept by Schumpeter describing the process of new innovations displacing existing markets and firms.

Net exports

The difference between a country's exports and imports.

Real exchange rate

The price of a country’s goods in terms of another country's goods, determined by the nominal exchange rate adjusted for price levels.

Nominal exchange rate

The price of a country’s currency in terms of another country’s currency.