baron macro

Consumption Expenditures

the dollar value of all the goods and services sold to households

Disposable Personal Income (DPI)

the income of households after taxes have been paid

Government Expenditures

the dollar value of goods and services sold to governments

Gross Domestic Product (GDP)

dollar value of production within a nation's borders

Gross National Product (GNP)

dollar value of production by a country's citizens

Intermediate Sales

sales to firms that will incorporate the item into their final product

Investment Expenditures

expenditure by businesses on plant and equipment and the change in business inventories

National Income (NI)

income earned by households and profits earned by firms after subtracting depreciation and indirect business taxes

National Economic Accounts (NEA)

a comprehensive group of statistics that measures various aspects of the economy's performance

Net Exports

exports minus imports

Personal Income (PI)

income received by households

Real GDP

GDP adjusted for price changes

Underground Economy

all the illegal production of goods and services and legal production that does not pass through markets

GDP =C+I+G+X

GDP per Capita = GDP/ Population

Consumer Price Index (CPI)

measure of the average change over time in the price paid by urban consumers for a market basket of consumer goods and services

Cyclical Unemployment

loss of jobs by individuals during a recession and the corresponding slowdown in production

Fisher's Hypothesis

Nominal interest rate= Real interest rate+Expected inflation

Frictional Unemployment

state of being out of work bc the person is in between jobs

GDP Deflator

measure of the level of prices in the economy

Hidden Unemployment

describing those who are able to work but who are not actively seeking employment bc they are discouraged about their prospects for finding employment

Inflation

a sustained rise in most prices in the economy

Menu Costs

the misallocation of resources bc of inflation

Nonaccelerating Inflation Rate of Unemployment

the full employment rate of unemployment; when employment falls below this rate, inflation accelerates

Seasonal Unemployment

state of being out of work bc of the time of year

Structural Unemployment

state of being out of work bc the economy is structured, or set up to a person's disadvantage

Unemployment Rate =Number of Unemployed/Civilian Labor Force

Nominal Interest Rate = Real interest rate+expected inflation

Real GDP =(GDP/GDP Deflator) x 100

GDP Deflator =(GDP/ Real GDP) x 100

Inflation Rate = [(CPI (this period) - CPI (previous period)) / (CPI (previous period))] x 100

CPI = [(Total Cost this period)/ Total Cost base period)] x 100

Aggregate Demand

the demand for all goods and services by all households, businesses, governments, and foreigners

Aggregate Supply

the supply of all goods and services by all producers in the economy

Business Cycle

a wave of economic activity comprised of an expansion and recession

Classical Economic Theory

the predominant paradigm in economic analysis from about 1800 until 1930, based on Say's Law

Equilibrium Price Level

the price level that equates aggregate supply and aggregate demand, the average level of prices in the economy

Equilibrium Quantity

the amount of output that results in no shortage or surplus, the amount of goods and service bought and sold in the economy

Expansion

a sustained improvement in economic activity

Potential GDP

the amount that can be produced when all of the ec are economy's resources are used fully and efficiently

Recession

a sustained decline in economic activity

Say's Law

theory that supply creates its own demand

Marginal Propensity to Consume

=(Change in Spending)/ (Change in Income)

Multiplier

= 1/(1- MPC)

Total Change in Income

= Initial Change in spending x Multiplier

Automatic stabilizers

government policies already in place that promote deficit spending during recessions and surplus budgets during expansion

Crowding Out

the increase in interest rates and subsequent decline in spending that occurs when the government borrows money to finance a deficit

Deficit

situation that exists when government spending exceeds tax revenues

Fiscal Policy

changes in government spending and taxes to fight recessions or inflations

the amount of an extra dollar of income that is spent

Marginal Propensity to Consume (MPC)

Multiplier

the degree of magnification that an initial change in spending will have on the economy

Phillips Tradeoff

the inverse relationship between inflation and unemployment

Rational Expectations

the idea that households and businesses will use all the information available to them when making economic decisions

Recessionary Gap

what occurs when the equilibrium quantity of output is below potential output

Stagflation

term used to describe the situation when the economy experiences inflation and a recession simultaneously

Surplus

spending by the government that is less than tax revenues

Multiplier

=1/(1-MPC)

Change in Real GDP

= Initial Change in Spending x Multiplier

Inflationary Gap

what occurs when the equilibrium quantity of output is above the potential output

Certificate of Deposit

debt instrument that is similar to a savings account except the interest rate is slightly greater and the deposit cannot be drawn on without penalty

Currency

coins and paper money

Discount Rate

the rate of interest the FED charges when it makes loans to depository institutions

Excess Reserves

the amount of any deposit that does not have to be held aside and may be used to make loans and buy investments

Federal Reserves

the central bank of the U.S.

Fiat Money

money that is not backed by any precious commodity

Government Securities

IOUs that the government issues when it borrows money

Liquidity

the ability to turn an asset into cash rapidly and without loss

M1

currency, transaction accounts, and travelers' checks

M2

M1 plus savings accounts, certificates of deposit, and other liquid assets

Money

anything that society generally accepts in payment for a good or service

Money Multiplier

= 1/reserve requirement

Open Market Operations

activites in which the FED buys and sells government securities in the secondary market

Required Reserves

the amount of any deposit that must be held aside and not used to make loans or buy investments

Reserve Requirement

the percentage of any deposit that must be held aside and not used to make loans or buy investments

Savings Account

an account at a depository institution that earns interest while the funds are readily available but cannot be withdrawn with check

Secondary Market

place where government securities that have already been issued may be bought and sold

Transaction Account

a checking account at a bank or a similar account at some other depository institution

Change in the money supply =Money Multiplier x Change in Bank Reserves

Board of Governors

executive board of the FED that makes major monetary policy decisions

Demand Management Policy

monetary and fiscal policy

Equation of Exchange

M x V = P x Q

Federal Funds Rate

the interest rate charged when a bank makes a loan to another bank

Federal Open Market Committee (FOMC)

a committee within the FED that designs and executes the particulars of monetary policy

Monetarist

one who believes that changes in the money supply hve a profound effect on the economy

Monetary Neutrality

policy in which a change in the money supply would result in a proportional change in prices while real variables, such as the unemployment rate, would be unaffected

Monetary Policy

changes in the money supply to fight recessions or inflations

Money Demand

the amount that households and firms want to hold in currency and deposits

Velocity of Money

describing the number of times the typical dollar of M1 or M2 is used to make purchases during a year

Capital

plant and equipment

Capital Productivity

the amount of output per unit of plant and equipment

Economic Growth

growth of output usually measured by the percentage change in real GDP or real GDP per capita

Human Capital

the skill and knowledge embodied in the labor force

Labor Productivity

the amount of output per unit of labor

Potential GDP

the amount that can be produced using resources fully and efficiently

Productivity

output per unit of input

Total Productivity

the amount of output per unit of all inputs

Rule of 70 Years

it takes a variable to double= 70/the annual growth rate of the variable

Appreciation

the increase of the value of a currency in terms of another currency

Balance of Payments

an accounting of the funds that flow into and out of a country comprised of the capital account and the current account

Balance of Trade

a nation's exports minus its imports