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self regulating economy
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An economy in which problems such as unemployment are resolved without government intervention, through the working of the invisible hand, and in which government attempts to improve the economy's performance would be ineffective at best, and would probably make things worse.
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Keynesian economics
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A school of thought emerging out of the works of John Maynard Keynes; according to this, a depressed economy is the result of inadequate spending and government intervention can help a depressed economy through monetary and fisical policy.
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Monetary policy
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Changes in the quantity of money in circulation designed to alter interest rates and affect the level of overall spending.
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Fiscal policy
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Changes in government spending and taxes designed to affect overall spending.
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Recession
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A period of economic downturn when output and unemployment are falling; also referred to as contraction.
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Expansion
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Period of economic upturn in which output and employment are rising; most economic numbers are following their normal upward trend; also referred to as recovery.
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Business cycle
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The short-run alternation between economic downturns, known as recessions, and economic upturns, knowns as expansions.
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Business cycle peak
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The point in time at which the economy shifts from expansion to recession.
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Business cycle trough
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The point in time at which the economy shifts from recession to expansion.
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Long-run economic growth
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The sustained rise in the quantity of goods and services the economy produces.
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Inflation
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A rise in the overall levels of prices.
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Deflation
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A fall in the overall levels of prices.
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Price stability
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A situation in which the overall cost of living is changing slowly or not at all.
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Open economy
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An economy that rades goos and services with other countries.
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Trade deficit
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When the value of the goods and service bought from foreigners is more than the value of the goods and services sold to consumers abroad.
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Trade surplus
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When the value of goods and service bought from foreigners is less than the value of the goods and services sold to them.
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National income and products account
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Method of calculating and keeping track of consumer spending, sales of producers, business investment spending, government purchases, and a variety of other flows of money among differnemt sectors of the economy; also referred to as national accounts.
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Consumer spending
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Household spending on goods and services from domestic and foreign firms.
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Stock
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A share in the ownership of a company held by a shareholder.
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Bond
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A legal document based on borrowing in the form of an IOU that pays interest.
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Government transfers
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Payments by the government to individuals for which no good or service is provided in return.
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Disposable income
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Income plus government transfers minus taxes; the total amount of household income avaliable to spend on consumption and saving.
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Private savings
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Disposable income minus consumer spending; disposbale income that is not spent on consumption but rather goes into financial markets.
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Financial markets
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The banking, stock, and bond markets, which channel private savings and foreign lending into investment spending, government borrowing, and foreign borrowing.
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Government borrowing
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The amount of funds borrowed by the government in the financial markets to buy goods and services.
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Government purchases of goods and services
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Total purchases by federal, state, and local governments on goods and services.
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Exports
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Goods and service sold to other countries.
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Imports
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Goods and service purchased from other countries.
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Inventories
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Stocks of goods and raw materials held to satisfy futuer sales.
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Investment spending
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Spending on productive physical capital, such as machinery and construction of structures, and on changes to inventories.
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final goods and services
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goods and services sold to the final, or end, user.
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intermediate good and service
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goods and services, bought from one firm by another firm, that are inputs for production of final goods and services.
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gross domestic product (GDP)
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the total value of all final goods and services produced in the economy during a given period, usually a year.
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aggregate spending
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the total flow of finds into markets for domestically produced final goods and services; the sum of consumer spending, investment spending, government purchases of goods and services, and exports minus imports.
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value added
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the value of a producer's sales minus the value of input purchases.
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net exports
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the difference between the value of exports and the value of imports. A positive value for net exports indicates that a country is a net exporter of goods and services; a negative value indicate that a country is a net importer of goods and service.
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aggregate output
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the total quantity of final goods and services the economy produces for a given time period, usually a year. Real GDP is the numerical measure of aggregate output typically used by economists.
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real GDP
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the total value of all final goods and service produced in the economy during a given year, calculated using the prices of a selected base year.
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nominal GDP
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the value of all final goods and services produced in the economy during a given year, calculated using the prices current in the year in which the output is produced.
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chained dollars
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method of calculating real GDP that splits the difference between growth rates calculated using early base years and the growth rates calculated using late base years.
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GDP per capita
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GDP divided by the size of the population; equivalent to the average GDP per person.
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aggregate price level
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a single number that represents the overall price level for final goods and services in the economy.
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market basket
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a hypothetical consumption bundle of consumer purchases of goods and services, used to measure changes in overall price level.
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price index
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a measure of the cost of purchasing a given market basket in a given year, where that cost in normalized so that it is equal to 100 in the selected base year, a measure of overall price level.
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inflation rate
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the annual percentage change in a price index- typically the consumer price index. This rate is positive when the aggregate price level is rising and negative when the aggregate price level is falling.
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consumer price index (CPI)
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a measure of prices; calculated by surveying market prices for a market basket intended to represent the consumption of a typical urban american family of four.
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producer price index (PPI)
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a measure of the cost of a typical basket of goods and services purchased by producers. Because these commodity prices respond quickly to changes in demand.
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GDP deflator
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a price measure for a given year that is equal to 100 times the ratio of nominal GDP to real GDP in that year.
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employment
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the total number of people currently employed for pay in the economy,either full-time or part-time.
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unemployment
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the total number of people who are actively looking for work but aren't currently employed.
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labor force
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the sum of employment and unemployment; that is, the number of people who are currently working plus the number of people who are currently looking for work.
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labor force participation rate
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the percentage of the population age 16 and older who are in the labor force.
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unemployment rate
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the percentage of the total number of people in the labor force who are unemployed
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discouraged workers
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individuals who want to work but who have states to government researchers that they aren't currently searching for a job because they see little prospect of finding one given the state of the job market.
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marginally attached workers
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nonworking individuals who say that would like a job and have looked for work in recent past but are not currently looking.
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underemployed
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the number of people who are working part-time because the cannot find a full-time job.
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job search
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when workers spend time looking for employment.
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frictional unemployment
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unemployment due to the time workers spend in job search.
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structural unemployment
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unemployment that results when there are more people seeking jobs in a labor market than there are jobs available at the current wage rate.
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efficiency wage
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wages that employers set above equilibrium wage rate as an incentive for workers to deliver better performance.
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natural rate of unemployment
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the normal unemployment rate around which the actual unemployment rate fluctuates; the unemployment rate that arises from the effects of frictional and structural unemployment.
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cyclical unemployment
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the difference between the actual rate of unemployment and the natural rate of unemployment.
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real wage
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the wage rate divided by the price level.
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real income
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income divided by the price level.
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shoe-leather costs
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the increased cost of transactions cause by inflation.
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menu costs
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the real cost of changing a listed price.
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unit-of-account costs
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costs arising from the way inflation makes money a less reliable unit of measurement.
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nominal interest rate
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the interest rate in dollar terms
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real interest rate
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the nominal interest rate minus the inflation rate
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disinflation
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the process of bringing down inflation that has become embedded in expectations.
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