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circular flow model
A model that shows the flow of goods and services and the interaction among households, businesses, and banks.
central economic problem
people have unlimited wants with limited resources
macroeconomics
the study of economy-wide phenomena, including inflation, unemployment, and economic growth.
microeconomics
the study of how households and firms make decisions and how they interact in markets.
economic goals
1.economic growth
2.full employment
3.economic efficiency
4.price level stability
5.economic fredom
6.an equitable distribution of income, economic security
7.balance of trade
structural unemployment
unemployment that occurs when workers' skills do not match the jobs that are available.
frictional unemployment
A type of unemployment caused by workers voluntarily changing jobs and by temporary layoffs; unemployed workers between jobs.
consumer price index (CPI)
weighted cost of base-period items in current year / weighted cost of base-period items in base year x 100
price change
change in CPI / beginning CPI x 100
labor force participation rate (LFPR)
number in labor force / adult population x 100
unemployment rate (UR)
number of unemployed / labor force x 100
anticipated inflation
Increases in the price level that occur at the expected rate.
unanticipated inflation
Increases in the price level at a rate greater than expected.
real GDP
GDP adjusted for inflation
nominal GDP
GDP measured in current prices
nominal income
the current dollar amount of a person's income.
real income
what an income will actually purchase after allowing for the effects of inflation.
disposable income
Income remaining for a person to spend or save after all taxes have been paid.
positive economics
the analysis of facts or data to establish scientific generalizations about economic behavior.
normative economics
The part of economics involving value judgments about what the economy should be like; focused on which economic goals and policies should be implemented; policy economics.
opportunity cost
Cost of the next best alternative use of money, time, or resources when one choice is made rather than another.
equilibrium
A situation in which the market price has reached the level at which quantity supplied equals quantity demanded.
supply
The amount of goods available.
demand
The desire, willingness, and ability to buy a good or service.
price indexes
help measure the economy by focusing on levels of inflation and deflation
components of GDP
consumption, investment, government purchases, and net exports
natural rate of unemployment
the unemployment rate that exists when the economy is at potential GDP
full employment
the level of employment reached when there is no cyclical unemployment but unemployment still exists.
discouraged workers
individuals who would like to work but have given up looking for a job.
leakages
The savings, taxes and import spending that remove spending from the circular flow of income.
injections
The investment, government spending and export revenues that add spending to the circular flow of income.
investments
Assets purchased with the goal of providing additional income from the asset itself.
capital
An economic system based on private property and free enterprise.
intermediate goods
goods used in the production of final goods.
disinflation
a reduction in the rate of inflation.
deflation
A situation in which prices are declining.
stagflation
A period of falling output and rising prices.
production possibilities curve
A graph that describes the maximum amount of one good that can be produced for every possible level of production of the other good.
gross domestic product
The sum total of the value of all the goods and services produced in a nation.
GDP
C + I + G + NX
net national product
A measure of all goods and services produced by a country in a year, including production from its investments abroad, minus the loss or degradation of natural resource capital as a result of productivity.
national income
The total income of an economy, often used interchangeable with the value of aggregate output.
personal income
Salaries and wages as well as investment income and government payments to individuals.
standard of living
Quality of life based on ownership of necessities and luxuries that make life easier.
specialization
Goods and services are produced in better quality, quantity and speed when people focus on producing a few things instead of making everything they want by themselves.
household production
Doing something in the home without pay that takes raw materials along with a family member's skill, experience, knowledge, and household equipment, to produce a useful product or service.
economic shocks
rise and fall of global housing market; financial sector collapse; global recession.
interest rates
Percentage that is applied to your debt.
price level
the average of all prices in the economy.
classical economic theory
The view that an economy will self-correct from periods of economic shock if left alone.
GDP
counts only FINAL goods and services ; does not count intermediate goods and secondhand goods.
GDP
can be calculated in 2 ways:
-add all consumption, investment and government expenditures plus net exports
-add all the incomes received by owners of the productive resources in the economy
producer price index (PPI)
measure of the changes in price over time that US producers charge for their goods and services.
unanticipated inflation
savers, lenders, and people on fixed incomes are hurt by this, borrowers gain from this.
cyclical unemployment
unemployment that rises during economic downturns and falls when the economy improves (BAD unemployment).
measuring employment
the labor force includes: those who work/look for word, does NOT include: elderly, military, those unable to work, kids
Real GDP in 1 year
(nominal GDP x 100) / price index
underemployed workers
people who work part time (might be over-qualified for their job) because they cannot find full-time jobs.
recovery
(expansion) A period of renewed economic growth followed by a recession or depression.
recession
(contraction) A slowdown in a nation's economy.
peak
real output, GDP, is at its highest point of the business cycle.
trough
the lowest point of real GDP reached during the business cycle. If this is particularly deep, it may be called a depression.
depression
economic situation where the level of output falls to especially low levels and unemployment climbs to very high levels relative to the historical average.
Real GDP
nominal/price index x 100
Index #
current/base x 100
GDP Deflator
nominal/real x 100
output growth
real GDP year 1 - real GDP year 2 / real GDP year 1 x 100
Price change
change in CPI / beginning CPI x 100
GDP doesn't include
leisure time
GDP does include
inventory, C + I + G + NX
GDP
same as nations income
most expensive aspect of GDP
consumer spending
least expensive aspect of GDP
exports - imports
Per capita GDP
A measure of the total output of a country that takes the gross domestic product (GDP) and divides it by the number of people in the country.
Nominal GDP
GDP measured in current prices
GDP Deflator
a measure of the price level calculated as the ratio of nominal GDP to real GDP times 100
inelastic
coefficient < 1
inferior good
if people's incomes increase, the consumption of this product won't be affected
producer price index
a measure of the cost of a basket of goods and services bought by firms
increase employment and unemployment
more people in the labor force
inflation rate
the percentage rate of change in price level over time
automation
led to increase unemployment of skilled workers
Labor force participation rate (LFPR)
labor force/adult population x 100
market basket
a representative collection of goods and services
unemployment increases
point inside curve will move closer to the origin
