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Economics

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the Structure of economic activity in a community, region, country, group of contries

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Gross Domestic Product GDP

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The market value of all final goods and services produced in the nation during a given period (usually a year)

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Gross World Product

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The market value of all final goods and services produced in the world during a given period

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Flow Variable

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A Measure of something over an interval of time, such as your spending per week.

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Stock Variable

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A measure of something at a particular point in time, such as the amount of money in your wallet

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Mercantilism

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The incorrect theory that a nations economic objective should be to accumulate previous metals in the public treasury; this theory prompted trade barriers to cut imports but other countries retailed to reducing trade and the gains from specialization

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Expansion

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A period during which the economy grows as reflected by rising output, employment, income, and other aggregate measures *Problem: Not all jobs are full time or pay high

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Contraction

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A period during which the economy declines as reflected by falling output, employment, income and other aggregate measures

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Depression

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A severe and prolonged reduction in economic activity during the 1930's

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Recession

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A period of decline in economic activity lasting more than a few months, as reflected by falling outputs, employment, income and other aggregate measures Ex. Greece

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Inflation

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An increase in the economy's average price level

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Leading economic Indicators

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Variables that predict, or lead to, a recession or recovery Ex. consumer confidence, stock market prices, business investments, and big ticket purchases (cars, houses)

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Coincident Economic indicators

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Variables that reflect peaks and troughs in economic activity as they occur Ex. employment, personal income, industrial production

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Lagging Economic Indicators

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Variables that follow or trail, changes in overall economic activity Ex. Interest rates, duration of unemployment

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Aggregate Output

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(Real GDP) A composite measure of all final goods or services produced in an economy during a given period

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Aggregate Demand

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The relationship between the economy's price level and aggregate output demanded with other things constant

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Price level

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A composite measure reflecting the prices of all goods and services in the economy relative to prices in a base year

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Real Gross Domestic Product (real GDP)

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The economy's aggregated output measure in dollars of constant purchasing power

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Aggregate Demand Curve

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A curve representing the relationship between the economy's price level and (real GDP) aggregate output demanded per period with other things constant

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Aggregate Supply Curve

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A curve representing the relationship between the economy's price level and the (real GDP) aggregated output supplied per period with other things constant

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The Age of Keynes

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Post WW2 (early 1970's), General theory of employment, spoke of business pessimism--instability of aggregate demand, John Maynard

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Federal Budget

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A plan for federal government outlays and revenues of specific period (usually a year)

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Federal Budget Deficit

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A flow variable that measures the amount by which the federal government outlays exceed federal government revenues in a particular period (usually a year)

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Demand-side Economics

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Macroeconomics policy that focuses on shifting the aggregate demand curve as a way of promoting full employment and price stability

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Fiscal Policy

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Government spending, taxes, and monetary policies

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The Great Stagflation

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(1973-80) World economic boom: Inflation, drop failures, oil, costs of war

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Stagflation

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A contraction, or stagnation of a nations output accompanied by inflation of price level *Rising prices, unemployment and interest rates

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Supply-side Economics

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Macroeconomics policy that focuses on a rightward shift of the aggregate supply curve through tax cuts or other changes that increase production incentives

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Economic growth

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An increase in gross domestic product illustrated by an outward shift of the long run aggregate supply curve or the production possibilities curve. *Result of increase in Technology/ New improved resources

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Productivity

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The ration of a specific measure of output (such as real GDP,) to a specific measure of input (such as labor) *In this case real GDP per hour of labor

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Human capital

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accumulated knowledge, skill, and experience, of the labor force

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Physical capital

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Machines, buildings, roads, modes of transportation, and other manufactured creations used to produce goods and services

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Labor productivity

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Output per unit of labor; measured as real GDP divided by hours of labor employed to produce that outpur

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Law of diminishing returns

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When the production possibilities frontier levels off because an increase in output no longer yields much satisfaction

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Per-worker Production Function

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The relationship between the amount of capital per worker in the economy and average output per worker *The better technology the more output Ex. Typewriter--> Computers

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Capital Deepening

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An increase in the amount of capital per worker one source of rising labor productivity *Technology would do this

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Basic Research

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The search for knowledge without regard to how that knowledge will be used

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Applied Research

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Research that seeks answers to particular questions or to apply scientific discoveries to develop specific products

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Convergence

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A theory predicting that the standard of living in economies around the world will grow more similar over time, with poorer countries eventually catching up with the richer ones

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Industrial Policy

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The view that government-- using taxes, subsides , and regulations should nurture the industries and technologies of the future, thereby giving these domestic industries an advantage over foreign competition EX. Chrysler was by Fiat b/c Obama said so

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Expenditure Approach to GDP

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A method of calculating GDP by adding spending on all final goods and services produced in the nation during the year

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Income Approach to GDP

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A method of calculating GDP by adding all payments for resources used to produce output in the nation during the year

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Final Goods and Services

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Goods and services sold to final, or end, users

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Intermediate Goods and Services

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Goods and services purchased by firms for further reprocessing and resale

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Double Counting

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The mistake of including the value of intermediate goods plus the value of final goods in GDP-- Counting the same good more than once

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Consumption

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Household purchases of final goods and services, except for new residences (Investments) * 2/3 of economy

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Investments

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The purchase of new plants, new equipment, new buildings, and new residences plus net additions to inventories *10-11 percent of economy

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Residential Construction

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Building new homes or dwelling places

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Inventories

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Producers stock of finished and in-process goods

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Government Purchases

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Spending for goods and services by all levels of government outlays minus transfer payments

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Net Exports

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The value of a countries exports minus the value of its imports

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Aggregate Expenditure

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(GDP) Total spending on final goods and services during a given period, usually a year

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Calculating GDP

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C + I + GS + (X-M)

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Aggregate income

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The sum of all income earned by resource suppliers in an economy during a given period

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Value Added

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the difference at each stage of production between the selling price of a product and the cost of intermediate goods purchased from other firms

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Disposable Income (DI)

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The income households have available to spend or save after paying taxes and receiving transfer payments

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Net taxes

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Taxes minus transfer payments

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Financial Markets

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Banks and other financial institutions that facilitate the flow of funds from savers to barrowers

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Leakage

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Any diversion of income from the domestic spending stream; includes savings, taxes, and imports

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Injection

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Any spending other than by households or any income other than from resource earnings; includes investments, government purchases, exports, and transfer payments

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Depreciation

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The value of capital stock used up to produce GDP or that become obsolete during the year

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Net Domestic Production

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Gross Domestic Product minus depreciation

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Nominal GDP

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GDP based on prices prevailing at the time of the transaction (Current dollar value)

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Base Year

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The year with which other years are compared when constructing an index; the index equals 100 in this year

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Price Index

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A number that shows the average price of goods; Changes occur over time show changes in the economies average price level

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Consumer Price Index

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(CPI) A measure of inflation based on the cost of a fixed market basket of goods and services

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GDP price level

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A comprehensive price index of all goods and services included in the gross domestic product

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Chain Weighed System

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An index that adjusts the weights from year to year in calculating a price index, thereby getting rid of much of the bias caused by a fixed price weighting system

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Noise

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Things that get in the way to determine inflation

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Indexing

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Protects purchasing power when inflation increases

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Distortion of tax

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tax code not index

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Shoe-leather

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Costs of economizing cash, increased costs of transactions caused by inflation

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Unemployment rate

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The number unemployed as a percentage of the labor force

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Discourage Workers

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These who drop out of the labor force in frustration because they can't find work

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Labor force participation rate

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The labor force as a percentage of the adult population *starts at 16 because you can graduate high school and work

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Frictional Unemployment

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Unemployment that occurs because job seekers and employers need time to find each other *3-6 months

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Seasonal Unemployment

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Unemployment caused by seasonal changes in the demand for certain kinds of labor

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Structural Unemployment

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Unemployment because 1. the skills in demand do not match those of the unemployed 2. the unemployed do not live where the Jobs are Ex. The coal miners in West Virginia so they had to move to find work

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Cyclical Unemployment

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Unemployment that fluctuates with the business cycle * increasing during contraction and decrease with expassion

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Full employment

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Employment levels when there is no cyclical unemployment *Only 6% unemployment

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Unemployment Benefits

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Cash transfers for those who lose their jobs and actively seeking employment *Extends 2 years

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Underemployment

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Workers are overqualified for their jobs or work fewer hours than they prefer *Employers may consider you a threat

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Hyper Inflation

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A very high rate of inflation

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Deflation

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a sustained decrease in the price level

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Disinflation

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A reduction in the price level

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Demand Pull Inflation

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A sustained rise in the price level caused by a rightward shift of the aggregate demand curve

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Cost Push inflation

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A sustained rise in the price level caused by a leftward shift of the aggregate supply curve

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Interest

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The dollar amount paid by barrowers to lenders

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Interest Rate

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Interest per year as a percentage of the amount load

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Nominal Interest Rate

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The interest rate expressed in current dollars as a percentage of the amount loaned; the interest rate on the loan agreement

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Real Interest Rate

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The interest rate expressed in dollars of constant purchasing power as a percentage of the amount loaned; the nominal interest rate minus inflation rate

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COLA

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Cost of living adjustments; the increase in a transfer payments or wage that reflects the increase of price level

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Hysteresis

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The possibility that periods of high unemployment tends to increase the rate of unemployment *Over time high unemployment may become the norm

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Theory of productivity and growth

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Increase standard of living: 1. improvement in the rules 2. better technology -> Increase in amount of resorces

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Productivity

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Efficient use of resources

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Labor Productivity

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Output per unit of labor *Increases with human and physical capital per worker

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Labor

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70 percent of production cost, most commonly used to measure production because it's easily measured

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Basic Research

answer

General search for knowledge

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Consumption Function

answer

The relationship between consumption and income *70 percent of GDP

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Marginal propensity to consume

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(MPC) The fraction of a change in income that is spent on consumption; the change in consumption divided by the change in income

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Marginal propensity of save

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(MPS) The fraction of change in income that is saved; the change in income that caused it

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Net Wealth

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The value of assets minus liabities

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Life Cycle Model of consumption and savings

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Young people barrow, middle age pay off debts and save, older people draw down their savings; on average net savings over a lifetime are small

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Investment Fuction

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The relationship between the amount business' plan to invest and the economies income

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Autonomous

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"Independent"

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Investment

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16 percent of GDP

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Government Purchases

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19 percent of GDP

Macroeconomics Ch 4-7 – Flashcards

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