Macroeconomics Chapters 6, 7, 8, 9, 10 – Flashcards
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consumer price index
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a measure of the overall cost of the goods and service bought by a typical consumer
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inflation rate
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the percentage change in the price index from the preceding period
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producer price index
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a measure of the cost of a basket of goods and services bought by firms
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indexation
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the automatic correction by law or contract of a dollar amount for the effects of inflation
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nominal interest rate
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the interest rate as usually reported without a correction for the effects of inflation
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real interest rate
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the interest rate corrected for the effects of inflation
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productivity
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the quantity of goods and services produced from each unit of labor input
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physical capital
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the stock of equipment and structures that are used to produce goods and services
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human capital
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the knowledge and skills that workers acquire through education, training and experience
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natural resources
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the inputs into the production of goods and services that are provided by nature, such as land, rivers, and mineral deposits
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technological knowledge
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society's understanding of the best ways to produce goods and services
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diminishing returns
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the property whereby the benefit from an extra unit of an input declines as the quantity of the input inreases
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catch-up effect
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the property whereby countries that start off poor tend to grow more rapidly than countries that start off rich
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financial system
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the group of institutions in the economy that help to match one person's saving with another person's investment
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financial markets
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financial institutions through which savers can directly provide funds to borrowers
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bond
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a certificate of indebtedness
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stock
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a claim to partial ownernship in a firm
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financial intermediaries
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financial institutions through which savers can indirectly provide funds to borrowers
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mutual fund
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an institution that sells shares to the public and uses the proceeds to buy a portfolio of stocks and bonds
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national saving
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the total income in the economy that remains after paying for consumption and government purchases
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private saving
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the income that households have left after paying for taxes and consumption
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public saving
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the tax revenue that the government has left after paying for its spending
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budget surplus
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an excess of tax revenue over government spending
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budget deficit
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a shortfall of tax revenue from government spending
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market for loanable funds
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the market in which those who want to save supply funds and those who want to borrow to invest demand funds
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crowding out
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a decrease in investment that results from government borrowing
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finance
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the field that studies how people make decisions regarding the allocation of resources over time and the handling of risk
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present value
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the amount of money today that would be needed, using prevailing interest rates, to produce a given future amount of money
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future value
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the amount of money in the future that an amount of money today will yield, given prevailing interest rates
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compounding
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the accumulation of a sum of money in, say, a bank account, where the interest earned remains in the account to earn additional interest in the future
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risk aversion
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a dislike of uncertainty
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diversification
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the reduction of risk achieved by replacing a single risk with a large number of smaller, unrelated risks
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firm-specific risk
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risk that affects only a single company
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market risk
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risk that affects all companies in the stock market
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fundamental analysis
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the study of a company's accounting statements and future prospects to determine its value
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efficient markets hypothesis
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the theory that asset prices reflect all publicly available information about the value of an asset
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informational efficiency
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the description of asset prices that rationally reflect all available information
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random walk
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the path of a variable whose changes are impossible to predict
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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 labor force that is unemployed
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labor-force participation rate
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the percentage of the adult population that is in the labor force
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natural rate of unemployment
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the normal rate of unemployment around which the unemployment rate fluctuates
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cyclical unemployment
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the deviation of unemployment from its natural rate
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discouraged workers
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individuals who would like to work but have given up looking for a job
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frictional unemployment
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unemployment that results because it takes time for workers to search for the jobs that best suit their tastes and skills
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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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job search
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the process by which workers find appropriate jobs given their tastes and skills
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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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union
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a worker association that bargains with employers over wages, benefits, and working conditions
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collective bargaining
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the process by which unions and firms agree on the terms of employment
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strike
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the organized withdrawal of labor from a firm by a union
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efficiency wages
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above-equilibrium wages paid by firms to increase worker productivity
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consumption + investment + government purchases + net exports
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Four components of expenditure of GDP
