H&O 18-19

Microeconomics

The study of how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices.

Macroeconomics

The study of the economy as a whole, including topics such as inflation, unemployment, and economic recession.

Business cycle

Alternating periods of economic expansion and economic recession.

Expansion

The period of a business cycle during which total production and total employment are increasing.

Recession

The period of a business cycle during which total production and total employment are decreasing.

Economic growth

The ability of an economy to produce increasing quantities of goods and services.

Inflation rate

The percentage increase in the price level from one year to the next.

Gross domestic product (GDP)

The market value of all final goods and services produced in a country during a period of time, typically one year.

Final good or service

A good or service purchased by a final user.

Intermediate good or service

A good or service that is an input into another good or service, such as a tire on a truck.

Transfer payments

Payments by the government to households for which the government does not receive a new good or service.

Consumption

Spending by households on goods and services, not including spending on new houses.

Investment

Spending by firms on new factories, office buildings, machinery, and additions to inventories, plus spending by households and firms on new houses.

Government purchases

Spending by federal, state, and local governments on goods and services.

Net exports

Exports minus imports.

Value added

The market value a firm adds to a product.

Underground economy

Buying and selling of goods and services that is concealed from the government to avoid taxes or regulations or because the goods and services are illegal.

Nominal GDP

The value of final goods and services evaluated at current-year prices.

Real GDP

The value of final goods and services evaluated at base-year prices.

Price level

A measure of the average prices of goods and services in the economy.

GDP deflator

A measure of the price level, calculated by dividing nominal GDP by real GDP and multiplying by 100.

Durable Good

long-lasting (>3years), used repeatedly good

Nondurable Good

short-lived (<3years), used quickly, <3years

Business Fixed Investment

spending by firms on new buildings, facilities, to produce more goods/services

Residential Investment

spending by households & firms on houses

Household production

goods/services people produce for themselves

Gross National Product

value of final goods/services produced by residents of U.S., even if outside U.S.

National Income

subract depreciation (consumption of fixed capital) from GNP to get National Income

Depreciation

tangible items decrease in value

Personal Income

income received by households

Disposable Personal Income

Personal income - personal tax payments
income available to spend

Employed

in government statistics, someone who currently has a job or who is temporarily away from his or her job

Unemployed

in the government statistics, someone who is not currently at work but who is available for work and who has actively looked for work during the previous month

labor force

the sum of employed and unemployed workers in the economy

unemployment rate

The percentage of the labor force that is unemployed

discouraged workers

people who are available for work but have not looked for a job during the previous four weeks because they believe no jobs are available for them

labor force participation rate

the percentage of the working-age population in the labor force

employment population ratio

the percentage of people of working age who have jobs

frictional unemployment

short-term unemployment that arises from the process of matching workers with jobs

structural unemployment

unemployment that arises from a persistent mismatch between the skills or attributes of workers and the requirements of jobs

cyclical unemployment

unemployment caused by a business cycle recession

natural rate of unemployment

the normal rate of unemployment, consisting of frictional unemployment and structural unemployment

efficiency wage

an above-market wage that a firm pays to increase workers' productivity

price level

a measure of the average prices of goods and services in the economy

inflation rate

the percentage increase in the price level from one year to the next

consumer price index

a measure of the average of the prices a typical family of four pays for the goods and services they purchase

producer price index

an average of the prices received by producers of goods and services at all stages of the production process

nominal interest rate

the stated interest rate on a loan

real interest rate

the nominal interest rate minus the inflation rate

deflation

a decline in the price level

menu costs

the costs to firms of changing prices