Unit 5 Econ Test

economic indicator

statistics that help economists judge the health of an economy

gross domestic product

a dollar amount the represents the total value of everything produced within an economy during a given set of time (usually a year)

GDP = C+I+G+NX

GDP Equation to calculate

unemployment rate

a percent that represents how many workers within an economy are unable to find a job

number of people unemployed/number of people in labor force x 100

unployement calculation equation

unemployed

someone who is in the labor force, is actively looking for work, but does not have a paying job

frictional unemployment

individuals who are not working because they are “between jobs” - natural unemployment

structural unemployment

individuals who are not working because technological advances have made their jobs unnecessary - natural unemployment

seasonal unemployment

individuals who are not working better jobs is not needed during a specific time of year - natural

cyclical unemployment

individuals who are not working because the economy is in decline an their former employers cannot afford to pay them - not natural

inflation rate

a percentage that indicated how much overall prices are changing within a set time period (usually a year)

CPI Now - CPI Yesterday/CPI Yesterday x 100

Inflation rate calculation equation

Consumer Price Index

a weighted average price of various goods that are purchased by most consumers within an economy

creeping inflation

slow, gradual inflation that is expected to occur (healthy)

hyperinflation

rapid, unnatural rates of inflation (unhealthy)

deflation

negative inflation, prices are actually going down (unhealthy)

business cycle

the normal pattern of economic expansion and contraction

recession

economic contraction lasting longer than 6 months

depression

extensive economic contraction combined with dramatically high unemployment

fiscal policy

stabilize the economy by changing tax rates and federal government spending (John Maynard Keynes) enacted by federal government

monetary policy

stabilize the economy by limiting or increasing the total amount of money available (Milton Friedman) enacted my federal reserve

expansionary fiscal policy

the goal of this policy is to increase economic activity by increasing government spending and/or cutting taxes

contractionary fiscal policy

the goal of this policy is to decrease economic activity by taking taxes and/or decreasing government spending

deficit spending

happens when the government spends more that it bring is from tax revenue

debt

total accumulation of the money borrowed to be spend beyond revenue

debt ceiling

the U.S. limit on how much money the government can borrow, helps the U.S. to be more efficient in spending

reserve requirement

percentage of a banks customer deposits it must hold in reserve

discount rate

interest rate at which banks can borrow money from the fed

open market operations

when the fed buys or sells short term government bonds

easy-money policy

accelerates the growth of the money supply, increases economic growth

tight-money policy

slowing the growth of the money supply, decreases economic growth

federal funds rate

the rate that banks charge each other to loan cash back and forth