Economics Unit 3 Vocabulary – Flashcards
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GDP
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Gross Domestic Product- the total market value of all final goods and services produced annually in an economy
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nominal GDP
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the production of goods and services valued at current prices
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real GDP
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GDP that has been adjusted for inflation by applying the price deflator
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per capita GDP
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GDP per person
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Bureau of Economic Analysis (BEA)
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a division of the US federal governments department of commerce that is responsible for the analysis and reporting of economic data used to confirm and predict economic trends and business cycles
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final goods
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Products, capital goods, and services that have been purchased for final use and not for resale or further processing or manufacturing.
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aggregate demand
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the amount of goods and services in the economy that will be purchased at all possible price levels
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aggregate supply
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the total amount of goods and services in the economy available at all possible price levels
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economic growth
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steady growth in the productive capacity of the economy (and so a growth of national income)
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business cycle
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Alternating periods of economic expansion and economic recession
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expansion
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A period of economic growth as measured by a rise in real GDP
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peak
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the height of an economic expansion, when real GDP stops rising
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contraction
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a period of economic decline marked by falling real GDP
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trough
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the lowest point of economic recession, when real GDP stops falling
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recession
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A slowdown in economic activity over a period of time. During one of these periods all of the following things decline: Gross Domestic Product (GDP), employment, investment spending, capacity utilization, household incomes, business profits and inflation. Meanwhile bankruptcies and the unemployment rate rise.
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depression
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A long-term economic state characterized by unemployment and low prices and low levels of trade and investment
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leading indicator
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key economic variables that economists use to predict a new phase of a business cycle
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coincident indicator
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Economic indicators that usually change at the same time as changes in overall business activity
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lagging indicator
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A measurable economic factor that changes after the economy has started to follow a particular pattern or trend. Lagging indicators are believed to confirm long-term trends. Examples include average duration of unemployment, corporate profits, and labor cost per unit of output.
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unemployment
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As measured by the Bureau of Labor Statistics, the proportion of the labor force actively seeking work but unable to find jobs
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BLS
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Bureau of Labor Statistics - this is the fact finding agency of the federal government in the field of labor economics and statistics. Responsibilities of the BLS include finding data on wage, national pay, industry surveys etc.
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labor force
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the total number of workers, including both the employed and the unemployed
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unemployment rate
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the percentage of the nation's labor force that is unemployed
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labor force participation rate
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the ratio (usually expressed as a percentage) of people in the labor force to the working-age population
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frictional unemployment
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A type of unemployment caused by workers voluntarily changing jobs and by temporary layoffs; unemployed workers between jobs.
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seasonal unemployment
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unemployment that occurs as a result of harvest schedules or vacations, or when industries slow or shut down for a season
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cyclical unemployment
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unemployment that rises during economic downturns and falls when the economy improves
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structural unemployment
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unemployment that results because the number of jobs available in some labor markets is insufficient to provide a job for everyone who wants one
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full employment
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the level of employment reached when there is no cyclical unemployment
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underemployment
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the condition when people work at jobs for which they are overqualified or that do not utilize their skills
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discouraged worker
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a person who wants a job but has given up looking
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unemployment insurance
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a government program that partially protects workers' incomes when they become unemployed
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inflation
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A general and progressive increase in prices
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inflation rate
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the percentage rate of change in price level over time
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quantity theory
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a theory asserting that the quantity of money available determines the price level and that the growth rate in the quantity of money available determines the inflation rate
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demand-pull theory
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theory that inflation occurs when demand for goods and services exceeds existing supplies
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cost-push theory
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theory that inflation occurs when producers raise prices in order to meet increased costs
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price level
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A measure of the average prices of goods and services in the economy
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price stability
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No sudden increase or decrease in the overall price of goods
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CPI
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(consumer price index) a measure of the overall cost of the goods and services bought by a typical consumer
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stagflation
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A period of falling output and rising prices and high unemployment
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hyperinflation
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A very rapid rise in the price level; an extremely high rate of inflation.
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Cost of Living Adjustment (COLA)
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An automatic increase in the incomes (wages) of workers when inflation occurs. a way of preventing labor unions from starting uprisings
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federal reserve
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This act established the Federal System, which established 12 distinct reserve to be controlled by the banks in each district; in addition, a Federal Reserve board was established to regulate the entire structure; improved public confidence in the banking system.
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board of governors
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the seven-member board that oversees the Federal Reserve System (appointed by president)
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federal open market committee
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the 12 member group that determines the purchase and sale policies of the Federal Reserve Banks in the market for U.S. government securities
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check clearing
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the process by which banks record whose account gives up money and whose account receives money when a customer writes a check
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money supply
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the quantity of money available in the economy
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M1
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narrowest measure of the money supply that includes all coins and paper bills in circulation, traveler's checks, checking account balances, and balances in credit unions
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M2
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M1 plus savings accounts, certificates of deposit, and other liquid assets
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open market operations
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Buying & selling government securities to change the supply of money
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discount rate
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The interest rate on the loans that the Fed makes to banks
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federal funds rate
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Interest rate banks charge each other for loans
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reserve requirement
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This is the percentage of their deposits that member banks must keep available in a Federal Reserve Bank.
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money multiplier
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the amount of money the banking system generates with each dollar of reserves
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tight money/contractionary monetary
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monetary policy resulting in higher interest rates and restricted access to credit; associated with a contraction of the money supply
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easy money/expansionary monetary
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monetary policy resulting in lower interest rates and greater access to credit; associated with an expansion of the money supply
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fiscal policy
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Government policy that attempts to manage the economy by controlling taxing and spending.
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expansionary fiscal policy
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An increase in government purchases of goods and services, a decrease in net taxes, or some combination of the two for the purpose of increasing aggregate demand and expanding real output
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contractionary/restrictive fiscal policy
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Spend less, tax more. Increases unemployment, slows inflation, hurts economic growth
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demand-side (Keynesian) economics
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Economic theory based on the principles of John Maynard Keynes stating that government spending should increase during business slumps and be curbed during booms.
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automatic stabilizers
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changes in fiscal policy that stimulate aggregate demand when the economy goes into a recession without policymakers having to take any deliberate action
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supply-side economics
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An economic philosophy that holds the sharply cutting taxes will increase the incentive people have to work, save, and invest. Greater investments will lead to more jobs, a more productive economy, and more tax revenues for the government.
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progressive tax
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A tax for which the percentage of income paid in taxes increases as income increases
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proportional tax
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A tax in which the average tax rate is the same at all income levels.
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regressive tax
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A tax for which the percentage of income paid in taxes decreases as income increases
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mandatory government spending
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benefits programs, nonprofits, medicaid and social security, also interest payment on debt owed
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discretionary government spending
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annual appropriation process, defense, law enforcement, transportation etc
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budget deficit
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situation when the amount of government spending exceeds its receipts during the fiscal year
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budget surplus
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an excess of tax revenue over government spending
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national debt
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The sum of government deficits over time.
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welfare
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Government aid to the poor
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cash transfer
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direct payments of money by the government to poor, disabled, or retired people
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in-kind transfer
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Indirect means of redistributing income; gives low income workers goods or vouchers for goods instead of giving them direct cash payments.
