Section 3.3 Macroeconomics Objectives Vocabulary

Consumer Price Index (CPI)

A price index that measures the cost of a fixed basket of consumer goods and services and compares the cost of this basket in one time period with its cost in some base period.

Cost-Push Inflation

Inflation that is caused by an increase in the costs of production in an economy, i.e. a shift of the SRAS curve to the left.

Deflation

A decrease in the general level of prices.

Demand Deficient Unemployment (Cyclical Unemployment)

Disequilibrium unemployment that exists when there is insufficient demand in the economy and wages do not fall to compensate for this.

Demand Pull Inflation

increases in the price level (inflation) resulting from an excess of demand over output at the existing price level, caused by an increase in aggregate demand

Discourage workers

Workers who have stopped looking for a job. When a workers stop looking for work they are no longer counted as unemployed.

Disinflation

A fall in the rate of inflation

Frictional Unemployment

unemployment that results because it takes time for workers to search for the jobs that best suit their tastes and skills

Full Employment level of output

The level of output that is produced by the economy when there is only natural unemployment.

Inflation

A sustained increase in the general or average level of prices and a fall in the value of money.

Labor force participation rate

the percentage of the adult population that is in the labor force

Non-Accelerating-Inflation Rate of Unemployment (NAIRU)

It refers to the lowest achievable rate of unemployment without adding upward pressure on the CPI rate of inflation.

Natural Rate of Unemployment

The unemployment rate due to frictional, structural, and seasonal conditions in labor markets. It is the unemployment rate that occurs when the economy is operating at a sustainable rate of output.

Nominal interest rates

the interest rate as usually reported without a correction for the effects of inflation

Producer Price Index (PPI)

a measure of the cost of a typical basket of goods and services purchased by producers. Because these commodity prices respond quickly to changes in demand, the PPO is often regarded as a leading indicator of changes in the inflation rate

Real interest rates

the interest rate that is adjusted by subtracting expected changes in the price level (inflation) so that it more accurately reflects the true cost of borrowing

Seasonal Unemployment

Unemployment attributable to relatively regular and predictable declines in particular industries or occupations over the course of a year, often corresponding with the climatic seasons.

Structural Unemployment

Occurs when skill sets need to be learned for people who want jobs or geography and distance separate a person from a new job

Underemployment

People working at jobs below their level of skills

Unemployment rate

As measured by the Bureau of Labor Statistics, the proportion of the labor force actively seeking work but unable to find jobs

underlying rate of inflation (Core Rate)

takes volatile and seasonal price changes into account and is also adjusted for the influence of government policy such as changes in tax rates or interest rates

Stagflation

A decline in real GDP combined with a rise in the price level

Hyperinflation

A very rapid rise in the price level; an extremely high rate of inflation.

Unemployment

The state of being eligible for work, actively looking for work, but without a job.

Good Deflation (Cost-Push Deflation)

A persistent fall in the average level of prices in an economy combined with an increase in real GDP.

Bad Deflation (Demand-Pull Deflation)

A persistent fall in the average level of prices in an economy combined with an decrease in real GDP.

Economic Growth

The growth of the real value of output in an economy. Usually measured as growth in real GDP.

Actual Growth

This occurs when previously unemployed factors of production are brought in to use. It is represented by a movement from a point within a PPC to a new point nearer to the PPC.

Government (national) debt

the total outstanding borrowing of a government, made up of internal debt (owing to national creditors) and external debt (owing to foreign creditors).

Long Run Phillips Curve

A curve showing the monetarist view that there is no trade-off between inflation and unemployment in the long run and that there exist a natural rate of unemployment that can only be affected by supply-side policies.

Phillips Curve

A curve showing the relationship between the rate of unemployment and the rate of inflation.

Productive capacity

The maximum possible output of an economy.

Short-Run Phillips Curve (SRPC)

A curve showing the inverse relationship between the rate of unemployment and rate of inflation, which suggests a trade-off between inflation and unemployment.

Unemployment benefits

Payments, usually made by the government, to people who are unemployed (and actively seeking employment).

Debt-GDP ratio

is a metric that compares a country's government debt to its gross domestic product (GDP). It's calculated by dividing the total amount of a country's debt by its GDP and is usually expressed as a percentage.