The total market value of all *final* goods and services produced annually within an economy (Think gross: total, domestic: within the country, product: production)
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Final good
A product purchased for final use and not for resale (i.e. a finished computer, not individual parts)
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Intermediate good
A product that is purchased for resale and further manufacturing, not final one (i.e. a restaurant purchases lettuce for its burgers)
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Double (multiple) counting
Including the values of intermediate goods in GDP and therefore counting them twice
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Consumption
The amount households spend on goods and services
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Investment
Spending for the production and accumulation of capital, additions to inventories, and new construction (helpful in the long-run)
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Government purchases
The expenditures (spending) of all governments (federal, state, and local) on final goods and services in an economy
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Net exports
Value of exports minus value of imports
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Nominal rates (GDP, income, interest rate)
Not adjusted for inflation; measured at the current price levels
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Real rates (GDP, income, interest rate)
Adjusted for inflation; how much your money is truly buying you
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Price index
A number which shows how the weighted average price of a certain set of goods changes through time
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Consumer price index (CPI)
A number which measures the prices of a fixed market basket of 300+ carefully selected goods and services a typical consumer will buy in a year
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Business cycle
Recurring increase and decreases in the level of economic activity over periods of years, results in recessions and expansions
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Recession/Contraction
A period characterized by declining real GDP, lower real income, and higher unemployment, calls for contractionary fiscal policy
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Expansion/Recovery
A period characterized by increasing real GDP, higher real income, and lower unemployment, calls for expansionary fiscal policy
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Unemployment rate
The percentage of the labor force (number of both unemployed and employed) that is unemployed at any time
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Natural rate of unemployment
The full employment/unemployment rate when an economy is achieving potential output, it is measured by frictional and structural unemployment, does not count cyclical
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Frictional unemployment
A type of unemployment caused by temporary layoffs and workers voluntarily changing job, may also include returning to school, choosing to quit, etc.
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Structural unemployment
The unemployment of workers whose skills are not in demand, lack the skills needed to obtain or retain employment, or are unable to move to places where jobs are available or if an employer relocates
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Cyclical unemployment
Unemployment caused by the business cycle; a result of insufficient total spending or a recession
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Potential output
The amount a society could produce when it fully employs its available resources (land, labor, capital, entrepreneurship), shown on the PPC curve
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Discouraged workers
Employees that have left the labor force because they are unable to find employment
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Balance of payments
A statement that summarizes an economy’s transactions with the rest of the world over a specified time period
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Current account
The part of the balance of payments that includes exports, imports, dividends and interest, and transfer payments
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Financial account
The part of the balance of payments that includes asset purchases of stocks, bonds, real estate, investment in factories, and any given currency
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Inflation
A rise in the general level of prices in an economy
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Rule of 72
The number of years it will take for some measure to double (i.e. for the price level to double), divide 72 by the annual inflation rate
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Demand-pull inflation
Inflation that is caused by there being more demand than there is output at the existing price level
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Cost-push (supply) inflation
Inflation that is caused by an increase in the costs of resources and then, in per unit production costs
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Anticipated inflation
Increases in the price level which occur at the expected rate
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Unanticipated inflation
Increases in the price level which occur at a greater rate than what was expected
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Cost-of-living-adjustment (COLA)
An automatic increase in the incomes of workers or in pensions when inflation occurs
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Productivity
Output per worker; it must increase for there to be economic growth
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Deflation
The opposite of inflation, a reduction in an economy’s price level (different from disinflation)
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Factor/Resource market
Where households sell the factors of production and firms buy these inputs
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Product market
Where goods and services are sold by the firms and bought by households
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Budget deficit
Where government spending is greater than tax revenue
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Balanced budget
Where government spending is equal to tax revenue (not necessarily good for an economy in the long-run)
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Economic growth
An outwards shift in the PPC shown by an increase in real output or real GDP per capita; caused by increasing employment rates, national income, and real GDP
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Calculating nominal/real GDP
The current production in the current year’s prices or the current production in base year prices
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National income
It is roughly equal to GDP in the circular flow, how much a nation’s people and businesses can make in a given year
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GDP deflator
The ratio of nominal GDP to real GDP in a year times 100
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Human capital
The improvement in labor created by education and knowledge of workers
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Contractionary fiscal policy
The government cuts spending on goods and services, lowers government transfer, and introduces higher taxes in order to increase the budget balances for that year (may make a surplus bigger or deficit smaller)
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Expansionary fiscal policy
The government increases spending on goods and services, raises government transfers, and introduces lower taxes in order to reduce the budget balance for that year (may make a surplus smaller or deficit bigger)
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Cyclically adjusted budget balance
An estimate of what the budget balance would be if real GDP were exactly equal to potential output
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Debt-GDP ratio
The governments debt as a percentage of GDP, determines the ability of governments to pay back their debt
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Implicit liability
Spending promises made by governments that are effectively a debt, despite not being included in the usual debt statistics
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Phillips Curve
Shows the relationship between inflation and unemployment on a graph (alongside the natural rate of unemployment)
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Flashcard (29)