question
closed economy
answer
a model that assumes there is no foreign sector (imports & exports)
question
circular flow of economic activity
answer
a model that shows how households and firms circulate resources, good, and incomes through the economy. This basic model is expanded to include the government and the foreign sector.
question
aggregation
answer
the process of summing the microeconomic activity of households and firms into a more macroeconomic measure of economic activity
question
gross domestic product (GDP)
answer
the market value of the final goods and services produced within one nation in a given time period
question
Final goods
answer
goods that are ready for their final use by consumers and firms. Ex. a new Harley-Davidson motorcycle
question
intermediate goods
answer
goods that require further modification before they are ready for final use. Ex. steel used to produce the new Harley.
question
double counting
answer
the mistake of including the value of intermediate stages of production in GDP on top of the final good.
question
second hand sales
answer
final goods and services that are resold. Even if they are resold many times, final goods and services are only counted once, in the in which they were produced.
question
nonmarket transactions
answer
households work or do-it-yourself jobs are missed by GDP accounting. The same is true of government transfer payments and purely financial transactions like the purchase of a share of IBM stock.
question
underground economy
answer
these include unreported illegal activity, bartering, or informal exchange in cash.
question
aggregate spending (GDP)
answer
the sum of all spending from four sectors of the economy. GDP= C + I + G + (X-M)
question
aggregate income (AI)
answer
the sum of all income earned by suppliers of resources in the economy. with some accounting adjustments, aggregate spending equals aggregate income.
question
Nominal GDP
answer
the value of current production at the current prices.
question
Real GDP
answer
the value of current production, but using prices from a fixed point in time.
question
base year
answer
the year that serves as a reference point for constructing a price index and comparing real values over time.
question
price index
answer
a measure of the average level of prices in a market basket for a given year, when compared to the prices in a reference year. You can interpret the price index as a current price level as a percentage of the level in the base year
question
market basket
answer
a collection of goods and services used to represent what is consumed in the economy
question
GDP price deflator
answer
the price index that measures the average price level of the goods and services that make up GDP.
question
Real rate of interest
answer
the percentage increase in purchasing power that a borrower pays a lender.
question
Expected (Anticipated) Inflation
answer
the inflation expected in a future time period. This expected inflation is added to the real interested rate to compensate for the lost purchasing power.
question
Nominal rate of interest
answer
the percentage increasing in money that the borrower pays the lender and is equal to the real rate plus the expected inflation.
question
business cycle
answer
the periodic rise and fall of economic activity.
question
expansion
answer
a period where real GDP is growing.
question
Peak
answer
the top of a business cycle where an expansion has ended.
question
contraction
answer
a period where real GDP is falling
question
Recession
answer
two consecutive quarters of falling real GDP
question
Trough
answer
the bottom of the cycle where a contraction had stopped.
question
Depression
answer
a prolonged, deep contraction in the business cycle.
question
Consumer price index (CPI)
answer
the price index that measures the average price level of the items in the base year market basket. This is the main the main measure of consumer
question
Inflation
answer
the percentage change in the CPI form one period to the next.
question
Nominal income
answer
Today's income measured in today's dollars. These are dollars adjusted
question
Real Income
answer
today's income measured in base year dollars. These inflation-adjusted dollars can be compared from year to year to determine whether purchasing power has increased and decreased.
question
Employed
answer
a person is employed if she has worked for pay at least one hour per week
question
unemployed
answer
a person is employed if he is not currently working but is actively seeking work
question
labor force
answer
the sum of all individuals 16 years and older who are either currently employed (E) or unemployed (U). LF=E + U
question
Out of the labor force
answer
a person is classified as out of the labor force if he has chosen to not seek employment.
question
unemployment rate
answer
the percentage of the labor force that falls into the unemployed category. Sometimes called the jobless rate. UR = 100 * U/LF
question
Discouraged workers
answer
citizens who have been without work for so long that they become tired of looking for work and drop out of the labor force. Because these citizens are not counted in the ranks of unemployed, the reported unemployment rate is understated.
question
Frictional unemployment
answer
when someone new enters the labor market or switches jobs.
question
Structural unemployment
answer
a type of unemployment that is the result of fundamental, underlying changed in the economy such that some job skills are no longer in demand
question
Cyclical unemployment
answer
a type of unemployment that rises and falls with the business cycle. This forms of unemployment is felt economy-wide, which makes it the focus of macroeconomic policy.
question
Full employment
answer
exists when the economy is experiencing no cyclical unemployment
question
Natural rate of unemployment
answer
The unemployment rate associated with full employment, somewhere between four and five percent in the US.
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
