Econ

this class can smd

Real GDP

gdp measured in “constant dollars” from “base year” (adjusts prices for yearly inflation)

Nominal GDP

uses current prices, not adjusted for inflation

Per Capita GDP

Real GDP divided by population (show the country’s standard of living)

Expansion

economic activity increases until peak

Peak

max economic activity (things are good but can’t keep up)

Recession

economic activity slows into trough

Trough

lowest point of GDP

Depression

prolonged recession (6-18 months)

Inflation

increase in the average price of goods and services produced in an economy

Consumer Price Index

measure of average change of time in prices

Creeping Inflation

small amount of inflation is normal/expected (1-3% per year)

Hyperinflation

inflation in overdrive (500%+)

Demand - Pull Inflation

demand > supply → shortage “pulling” price up

Cost - Push Inflation

cost of production increases → prices are “pushed” up

Wage Price Spiral

rising prices → higher wages → rising wages drive up prices

Unemployment

portion of the labor force that is not working but is willing and able (natural rate = 4-6%)

Common Stock

many shares of this without benefits, like paying a dividend

Preferred Stock

fewer shares and generally pays a dividend

Dividend

regular payment to stockholder

Bonds

bondholders become the lender

Fiscal Policy

use of taxation and government spending to stabilize economy

Command Economy

central authority (communism)

Market Economy

individual self-interest (capitalism)

Mixed Economy

mix of command and market

Economic Freedom

make choices in purchases and employment

Adam Smith

wrote “The Wealth of Nations”

• Profit leads to economic growth

• Competition → production → low prices

• No government regulation

Karl Marx

wrote “The Communist Manifesto”

• Labor is highest value

• Capitalism is oppressive

• Private property = excess ownership

Law of Demand

as price increase, quantity demanded decreases and vise versa (TIRES)

Law of Supply

increase of price results in increase of quantity supplied and vise versa (TIGERS)

Demand elasticity

degree to which changes in price affect changes in quantity demanded (flatter = more elastic)

Inelastic

change in price DOES NOT affect change in quantity demanded

Surplus

quantity supplied is greater than quantity demanded

Shortage

quantity supplied is less than quantity demanded

Market Equilibrium

where demand and supply intersect

Price Floor

when lowest legal price paid for goods or service is more than equilibrium (causes surplus)

Price Ceiling

when highest legal price paid for goods or service is less than equilibrium (causes shortage)

Progressive Tax

as income grows, moves taxpayer into higher percentage bracket

Regressive Tax

percent taxed decreases as income increases

Proportional or Flat Tax

same percentage is paid by all

Free Enterprise System

economic system where businesses and individuals operate without government intervention

Revenue

total income generated from sales of goods and services

Marginal Utility

additional benefit consumer gets from using one more unit of a good or service

Monetary Policy

central bank influences money supply

Production Possibilities Frontier

model that represents trade offs with resources available

Gross Domestic Product

total value of an economy from all its goods and services produced

Partnership

business structure with shared ownership

Corporation

business that is a legal entity from its owners, made for profit

Property Rights

how controlling factors of production influence investments and trade

Cooperate

businesses are owned by members (workers or consumers)

Product Market

where goods and services are bought and sold

Sole Proprietorship

business structure where one person owns it all