Macroeconomics Chapters 6-9 – Flashcards
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Adjustable-rate mortgage (ARM)
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A mortgage (home loan) that adjusts the nominal interest rate to changing rates of inflation.
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Aggregate demand
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The total quantity of output (real GDP) demanded at alternative price levels in a given time period, ceteris paribus.
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Aggregate supply
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The total quantity of output (real GDP) producers are willing and able to supply at alternative price levels in a given time period, ceteris paribus.
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Autonomous consumption
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Consumer spending not dependent on current income.
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Average propensity to consume (APC)
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Total consumption in a given period divided by total disposable income.
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Base year
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The year used for comparative analysis; the basis for indexing price changes.
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Bracket creep
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The movement of taxpayers into higher tax brackets (rates) as nominal incomes grow.
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Business cycle
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Alternating periods of economic growth and contraction.
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Consumer Price Index (CPI)
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A measure (index) of changes in the average price of consumer goods and services.
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Consumption
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Expenditure by consumers on final goods and services.
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Consumption function
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A mathematical relationship indicating the rate of desired consumer spending at various income levels.
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Core inflation rate
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Changes in the CPI, excluding food and energy prices.
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Cost-of-living adjustment (COLA)
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Automatic adjustments of nominal income to the rate of inflation.
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Cyclical unemployment
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Unemployment attributable to a lack of job vacancies—that is, to an inadequate level of aggregate demand.
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Deflation
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A decrease in the average level of prices of goods and services.
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Demand-pull inflation
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An increase in the price level initiated by excessive aggregate demand.
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Discouraged worker
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An individual who isn't actively seeking employment but would look for or accept a job if one were available.
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Disposable income
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After-tax income of households; personal income less personal taxes.
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Dissaving
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Consumption expenditure in excess of disposable income; a negative saving flow.
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Equilibrium (macro)
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The combination of price level and real output that is compatible with both aggregate demand and aggregate supply.
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Equilibrium GDP
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The value of total output (real GDP) produced at macro equilibrium (AS = AD).
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Fiscal policy
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The use of government taxes and spending to alter macroeconomic outcomes.
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Frictional unemployment
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Brief periods of unemployment experienced by people moving between jobs or into the labor market.
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Full employment
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The lowest rate of unemployment compatible with price stability, variously estimated at between 4 percent and 6 percent unemployment.
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Full-employment GDP
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The value of total market output (real GDP) produced at full employment.
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GDP deflator
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A price index that refers to all goods and services included in GDP.
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Growth recession
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A period during which real GDP grows but at a rate below the long-term trend of 3 percent.
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Hyperinflation
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Inflation rate in excess of 200 percent, lasting at least one year.
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Inflation
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An increase in the average level of prices of goods and services.
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Inflation rate
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The annual percentage rate of increase in the average price level.
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Inflationary flashpoint
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The rate of output at which inflationary pressures intensify; the point on the AS curve where slope increases sharply.
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Inflationary GDP gap
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The amount by which equilibrium GDP exceeds full-employment GDP.
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Investment
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Expenditures on (production of) new plants, equipment, and structures (capital) in a given time period, plus changes in business inventories.
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Item weight
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The percentage of total expenditure spent on a specific product; used to compute inflation indexes.
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Labor force
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All persons over age 16 who are either working for pay or actively seeking paid employment.
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Labor force participation rate
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The percentage of the working-age population working or seeking employment.
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Laissez faire
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The doctrine of "leave it alone," of nonintervention by government in the market mechanism.
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Law of demand
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The quantity of a good demanded in a given time period increases as its price falls, ceteris paribus.
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Macroeconomics
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The study of aggregate economic behavior, of the economy as a whole.
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Marginal propensity to consume (MPC)
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The fraction of each additional (marginal) dollar of disposable income spent on consumption; the change in consumption divided by the change in disposable income.
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Marginal propensity to save (MPS)
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The fraction of each additional (marginal) dollar of disposable income not spent on consumption; 1 − MPC.
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Monetary policy
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The use of money and credit controls to influence macroeconomic outcomes.
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Money illusion
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The use of nominal dollars rather than real dollars to gauge changes in one's income or wealth.
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Natural rate of unemployment
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The long-term rate of unemployment determined by structural forces in labor and product markets.
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Nominal GDP
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The value of final output produced in a given period, measured in the prices of that period (current prices).
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Nominal income
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The amount of money income received in a given time period, measured in current dollars.
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Okun's Law
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One percent more unemployment is estimated to equal 2 percent less output.
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Outsourcing
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The relocation of production to foreign countries.
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Price stability
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The absence of significant changes in the average price level; officially defined as a rate of inflation of less than 3 percent.
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Production possibilities
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The alternative combinations of final goods and services that could be produced in a given period with all available resources and technology.
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Real GDP
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The value of final output produced in a given period, adjusted for changing prices.
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Real income
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Income in constant dollars; nominal income adjusted for inflation.
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Real interest rate
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The nominal interest rate minus the anticipated inflation rate.
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Recession
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A decline in total output (real GDP) for two or more consecutive quarters.
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Recessionary GDP gap
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The amount by which aggregate spending at full employment falls short of full-employment output.
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Relative price
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The price of one good in comparison with the price of other goods.
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Saving
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That part of disposable income not spent on current consumption; disposable income less consumption.
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Say's Law
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Supply creates its own demand.
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Seasonal unemployment
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Unemployment due to seasonal changes in employment or labor supply.
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Structural unemployment
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Unemployment caused by a mismatch between the skills (or location) of job seekers and the requirements (or location) of available jobs.
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Supply-side policy
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The use of tax incentives, (de) regulation, and other mechanisms to increase the ability and willingness to produce goods and services.
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Underemployment
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People seeking full-time paid employment that work only part-time or are employed at jobs below their capability.
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Unemployment
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The inability of labor force participants to find jobs.
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Unemployment rate
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The proportion of the labor force that is unemployed.
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Wealth effect
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A change in consumer spending caused by a change in the value of owned assets.
