ECONOMICS

GDP

Gross Domestic Product - the total value of all final goods and services produced in a country.

GDP formula

GDP = C + I + G + (X - M). Consumer spending (C) is the biggest piece (~68%).

Real GDP

GDP adjusted for inflation.

Nominal GDP

GDP not adjusted for inflation.

Business cycle

Expansion

Recession

2+ quarters (6+ months) of economic decline.

Depression

6+ quarters (18+ months) of decline.

Inflation

Rising prices; "too many dollars chasing too few goods." Measured by the CPI.

CPI

Consumer Price Index - measures consumer inflation.

PCE

The Fed's preferred inflation gauge; the Fed targets ~2%.

Deflation

A general fall in prices

Stagflation

High inflation plus high unemployment plus slow growth (the 1970s).

Unemployment rate

Unemployed divided by labor force. Full employment is about 4-5%.

Frictional unemployment

People between jobs.

Structural unemployment

A skills mismatch.

Cyclical unemployment

Caused by a recession.

Federal Reserve

The U.S. central bank (created 1913); dual mandate = max employment + stable prices.

FOMC

The Federal Open Market Committee - sets the target Federal Funds Rate.

Federal Funds Rate

The bank-to-bank overnight rate; the Fed's main lever.

Discount rate

The Fed's rate to banks.

Prime rate

Banks' rate to their best customers.

SOFR

The benchmark rate that replaced LIBOR.

Open market operations

The Fed buying/selling Treasuries; its main tool.

Monetary policy

Controlled by the Fed; manages interest rates and money supply.

Fiscal policy

Controlled by Congress and the President; government spending and taxes.

Expansionary policy

Spending more or cutting taxes/rates to fight a recession.

Contractionary policy

Spending less or raising taxes/rates to fight inflation.

Budget deficit

When government spending exceeds revenue.

National debt

The cumulative total of all budget deficits.

M1

The most liquid money: cash plus checking.

M2

M1 plus savings and money-market funds.

FICO score

A credit score (300-850); payment history (35%) is the biggest factor.

Net worth

Assets minus liabilities.

Law of demand

Price up

Law of supply

Price up

Monopoly

One seller.

Oligopoly

A few sellers.