Krugman’s Economics For AP Section 3 Vocabulary

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National income and product accounts
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keep track of the flows of money between different sectors of the economy
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National accounts
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keep track of the flows of money between different sectors of the economy
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Household
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a person or group of people who share income
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Firm
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An organization that produces goods and services for sale
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Product markets
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Where goods and services are bought and sold
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Factor markets
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Where resources, especially capital and labor, are bought and sold
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Consumer spending
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Household spending on goods and services
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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 loan in the form of an IOU that pays interest
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Government transfers
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Payments that the government makes to individuals without expecting a good or service in return
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Disposable income
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equal to income + government transfers – taxes, is the total amount of household income available to spend on consumption and to save
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Private savings
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equal to disposable income – consumer spending, is disposable income that is not spent on consumption
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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
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Government purchases of goods and services
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Total expenditures on goods and services by federal, state, and local governments
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Exports
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Goods and services sold to other countries
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Imports
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Goods and services purchased from other countries
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Inventories
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Stocks of goods and raw materials held to facilitate business operations
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Investment spending
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Spending on new productive physical capital, such as machinery and structures, and on changes in 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 goods and services
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Goods and services bought from one firm by another firm to be used as inputs into the 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 year
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Aggregate spending
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The total spending on domestically produced final goods and services in the economy- is the sum of consumer spending (C), investment spending (I), government purchases of goods and services (G), and exports – imports (X – IM)
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Value added (of a producer)
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The value of its sales – the value of its purchases of inputs
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Net exports
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The difference between the value of exports and the value of imports (X-IM)
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Aggregate output
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The total quantity of final goods and services produced within an economy
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Real GDP
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The total value of all final goods and services 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 total value of all final goods and services produced in the economy during a given year, calculated with the prices current in the year in which the output is produced
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Chain-linking
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The method of calculating changes in real GDP using the average between the growth rate calculated using an early base year and the growth rate calculated using a late base year
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GDP per capita
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GDP divided by the size of the population; it is equivalent to the average GDP per person
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Employed
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People who are currently holding a job in the economy, either full-time or part-time
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Unemployed
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People who are actively looking for work but aren’t currently employed
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Labor force
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Equal to the sum of the employed and the unemployed
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Labor force participation rate
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The percentage of the population aged 16 or older that is 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 not employed
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Discouraged workers
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Nonworking people who are capable of working but have given up looking for a job due to the state of the job market
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Marginally attached workers
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Workers that would like to be employed and have looked for a job in the recent past but are not currently looking for work
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Underemployed
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People who work part-time because they cannot find full-time jobs
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Job search
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The act of a worker spending time to look for employment
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Frictional unemployment
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Underemployment due to the time workers spend in job search
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Structural unemployment
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Underemployment 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 wages
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Wages that employers set above the equilibrium wage rate as an incentive for better employee performance
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Natural rate of unemployment
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the unemployment rate that arises from the effects of frictional plus structural unemployment
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Cyclical unemployment
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The deviation of the actual rate of unemployment from the natural rate
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Real wage
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The wage rate/price level
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Real income
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income/price level
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Inflation rate
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The percent change per year in a price index, typically the consumer price index
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Shoe-leather costs
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The increased costs of transactions caused by inflation
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Menu costs
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The real costs of changing listed prices
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Unit-of-account costs
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arise 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 actually paid for a loan
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Real interest rate
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The nominal interest rate – the rate of inflation
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Disinflation
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The process of bringing the inflation rate down
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Aggregate price level
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The measure of the overall level of prices in the economy
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Market basket
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A hypothetical set of consumer purchases of goods and services
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Price index
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Measures the cost of purchasing a given market basket in a given year. The index value is normalized so that it is equal to 100 in the selected base year
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Consumer price index (CPI)
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Measures the cost of the market basket of a typical urban American family
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Producer price index (PPI)
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Measures the changes in the prices of goods and services purchased by producers
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GDP deflator
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(For a given year) Is 100 times the ratio of nominal GDP: real GDP in that year

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