The+Macroeconomy+-+Chapters+12+and+13+revised

Full Employment

Working to keep the unemployment rate at or below 4%.

Price Stability

Working to keep the inflation rate modest, targeted at about 4%.

Economic Growth

Measured by GDP, it indicates an increase in the total value of goods and services produced.

Gross Domestic Product (GDP)

The total value of all final new goods and services produced in a year within the United States.

Nominal GDP

GDP expressed in current dollars, not adjusted for inflation.

Real GDP

GDP adjusted for inflation, providing a more accurate reflection of an economy's size.

Business Cycle Phase 1: Growth, Expansion, Boom

Characterized by increasing production and employment, and a reduction in inventories.

Business Cycle Phase 2: Peak

Inventories are very low, unemployment is very low, and prices are rising faster.

Business Cycle Phase 3: Contraction, Bust

Production slows, inventories pile up, and unemployment rises.

Business Cycle Phase 4: Trough

High unemployment, low inflation (deflation), and slow production.

Demand Pull Inflation

Inflation resulting from demand for goods and services increasing faster than supply.

Cost Push Inflation

Inflation caused by rising resource costs forcing production costs and prices up.

Velocity of Money

The rate of spending; a higher velocity leads to rising prices.

Types of Unemployment

Includes seasonal, structural, frictional, and cyclical unemployment.

Aggregate Demand

The total demand for goods and services in the nation as a whole.

Aggregate Supply

The total supply of goods and services the nation is willing and able to produce.

Monetary Policy

Actions by the Federal Reserve to influence the money supply and interest rates.

Fiscal Policy

Government adjustments to spending and tax rates to influence the economy.

Inflation Rate

The percentage increase in the price level of goods and services over a certain period.

Unemployment Rate

The percentage of the labor force that is jobless and actively seeking employment.

Consumer Price Index (CPI)

A measure that examines the weighted average of prices of a basket of consumer goods and services.

Interest Rate

The amount charged by lenders to borrowers for the use of money, usually expressed as a percentage.

Supply Shock

An unexpected event that causes a sudden change in supply, leading to shifts in prices and production.

Recession

A significant decline in economic activity across the economy lasting more than a few months.

Inflation Targeting

A monetary policy strategy used by central banks to maintain inflation at a specified level.

Liquidity

The availability of liquid assets to a market or company, indicating how easily assets can be converted into cash.

Monetary Supply

The total amount of money available in an economy at a particular time.

Interest Rate Effect

The change in the quantity of goods and services demanded due to changes in interest rates.

Purchasing Power

The ability of an individual to buy goods and services, influenced by income and price levels.

Stagflation

A combination of stagnant economic growth, high unemployment, and high inflation.

Consumer Confidence Index (CCI)

A measure of consumer optimism regarding the overall state of the economy and their personal financial situation.

Labor Force Participation Rate

The percentage of the working-age population that is either employed or actively seeking employment.

Natural Rate of Unemployment

The long-term rate of unemployment that the economy tends to revert to, consisting of frictional and structural unemployment.

Real Interest Rate

The nominal interest rate adjusted for inflation, reflecting the true cost of borrowing.

Balance of Payments

A record of all economic transactions between residents of a country and the rest of the world over a period.

Trade Surplus

Occurs when a country's exports exceed its imports, leading to a net inflow of domestic currency.

Hyperinflation

An extremely rapid or out of control inflation, often exceeding 50% per month.

Deflation

A decrease in the general price level of goods and services, often associated with reduced demand.

Supply and Demand

Economic model explaining the interaction between sellers and buyers; price is determined by availability and desire.

Monetary Policy Tools

Includes open market operations, discount rate changes, and reserve requirements used by the Federal Reserve.

Frictional Unemployment

Temporary unemployment during the transition between jobs, including new entrants to the workforce.

Structural Unemployment

Joblessness resulting from changes in the economy that create a mismatch between skills and job requirements.

Cyclical Unemployment

Unemployment related to the cyclical trends in the economy, typically increasing during recessions.

Basic Economic Questions

What to produce, how to produce, and for whom to produce; essential for any economy.

Economic Indicators

Statistics that provide information about the economic performance, such as GDP, employment rates, and inflation.

Welfare Economics

A branch of economics that focuses on the optimal allocation of resources and goods to create social welfare.

Opportunity Cost

The value of the next best alternative that is foregone when making a decision.

Marginal Utility

The additional satisfaction gained from consuming one more unit of a good or service.

Budget Deficit

Occurs when expenses exceed revenue, resulting in a shortfall that must be financed.

Exchange Rate

The value of one currency for the purpose of conversion to another; affects international trade.

Trade Balance

The difference between the value of a country's exports and imports.

Bank Runs

When a large number of people withdraw their deposits simultaneously due to fears that the bank will become insolvent.