Prentice Hall economics Chapter 12-13 – Flashcards
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frictional unemployment
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unemployment that occurs when people take time to find a job
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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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structural unemployment
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unemployment that occurs when workers' skills do not match the jobs that are available
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structural unemployment
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unemployment that occurs when workers' skills do not match the jobs that are available
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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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census
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population count
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unemployment rate
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the percentage of the labor force that is unemployed
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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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workers are overqualified for their jobs or work fewer hours than they would prefer
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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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inflation
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a general and progressive increase in prices
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purchasing power
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a comparison of income versus the relative cost of a set standard of goods and services in different geographic areas
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price index
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an index that traces the relative changes in the price of an individual good (or a market basket of goods) over time
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CPI
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an index of the cost of all goods and services to a typical consumer
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market basket
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a representative collection of goods and services
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inflation rate
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the rate of change of prices (as indicated by a price index) calculated on a monthly or annual basis
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chronic inflation
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Inflation that rises steadily from month to month over a long period.
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hyperinflation
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When the German economy tried to print bills to pay off their debt, inflation rates of 40% a day
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quantity theory
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theory that too much money in the economy causes inflation
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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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wage price spiral
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the process by which rising wages cause higher prices, and higher prices cause higher wages
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fixed income
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an income that does not increase even though prices go up
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deflation
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the act of letting the air out of something
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poverty threshold
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an income level below that which is needed to support families or households
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poverty rate
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percentage of people whose income falls below the poverty line
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income distribution
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the way all the income earned in a country is divided among different groups of income earners
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food stamps
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government coupons that can be used to purchase food
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lorenz curve
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the curve that illustrates income distribution
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enterprise zone
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a city district where development receives special tax advantages
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block grant
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a grant of federal money to state and local governments to support social welfare programs
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workfare
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programs that require welfare recipients to exchange some of their labor in return for benefits
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National Income Accounting
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a system that collects macroeconomic statistics on production, income, investment, and savings
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Gross Domestic Product (GDP)
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the dollar value of all final goods and services produced within a country's boarders in a given year
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Intermediate Goods
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goods used in the production of final goods
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Durable Goods
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goods that last for a relatively long time, such as refrigerators, cars, and DVD players
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Nondurable Goods
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goods that last a short period of time, such as food, light bulbs, and sneakers
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Nominal GDP
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GDP measured in current prices. It is not corrected for inflation.
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Real GDP
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values output using the constant prices of a base year. It is corrected for inflation.
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Gross National Product (GNP)
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the annual income earned by US-owned firms and US citizens
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Depreciation
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the loss of the value of capital equipment that results from normal wear and tear
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Price Level
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the relative cost of goods and services in the entire economy at a given point in time
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Aggregate Supply
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the total amount of goods and services in the economy at all possible price levels
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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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Business Cycle
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a period of macroeconomic expansion followed by a period of contraction
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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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Economic Growth
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a steady, long term increase 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 in an economic contraction (decline), when real GDP stops falling
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Recession
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a prolonged (6-18 months) economic contraction
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Depression
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a recession that is especially long and severe (high unemployment and low factory output)
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Stagflation
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combination of "stagnant" (not moving) and inflation. It is a decline in real GDP combined with a rise in the price level
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Business Cycles are affected by 4 main economic variables (influences GDP):
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1. Business investments 2. Interest rates and credit 3. Consumer expectations 4. External Shock
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Leading Indicators
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key economic variables that economists use to predict a new phase of a business cycle (ex. stock market, interest rates, and new home sales)
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Real GDP Per Capita
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real GDP divided by the total population
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Capital Deepening
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process of increasing the amount of capital per worker. One of the most impt. sources of growth in modern economies
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Saving
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income not used for consumption
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Savings Rate
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the proportion of disposable income that is saved
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Technological Progress
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an increase in efficiency gained by producing more output without using more inputs
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Frictional Unemployment
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unemployment that occurs when people take time to find a job. People between jobs. May have quit and are looking. After graduating looking for the best job.
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Seasonal Unemployment
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occurs when industries slow or shut down for a season or make seasonal shifts in their production schedules
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Structural Unemployment
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unemployment that occurs when workers' skills do not match the jobs that are available
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5 major causes of structural unemployment:
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1. Development of new technology 2. Discovery of new resources 3. Changes in consumer demand 4. Globalization 5. Lack of education
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Cyclical Unemployment
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unemployment that rises during economic downturns and falls when the economy improves (ex. waitress)
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Census
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an official count of the population
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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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Full Employment
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the level of employment reached when there is no cyclical unemployment. normal UE rate: 4-6%
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underemployed
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working at a job for which one is over-qualified, or working part-time when full-time work is desired
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Discouraged Workers
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a person who wants a job, but has given us looking
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Inflation
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a general increase in all prices over time, can distort economic variables like GDP, so we have 2 types. One is right for inflation and one is not.
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Purchasing Power
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the ability to purchase goods and services, is decreased by rising prices. hurts people on fixed incomes
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Price Index
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a measurement that shows how the average price of a standard group of goods changes over time
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Consumer Price Index (CPI)
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determined by measuring the price of a standard group of goods meant to represent the "market basket" of an urban consumer. Computed by the Bureau of Labor Statistics
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Market Basket
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a representative collection of goods and services
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Inflation Rate
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the percentage rate of change in price level over time
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Core Inflation Rate
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the rate of inflation excluding the effects of food and energy prices
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Hyperinflation
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inflation that is out of control
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Quantity Theory
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states that too much money in the economy causes inflation. This can be maintained by increasing the money supply at the same rate the economy is growing
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Demand-Pull Theory
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theory that inflation occurs when demand for goods and services exceeds existing suppliers
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Cost-Push Theory
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inflation occurs when producers raise prices in order to meet increased costs. Can lead to a W-P spiral
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Wage-Price Spiral
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the process by which rising wages cause higher prices, and higher prices cause higher wages
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Fixed Income
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income that does not increase even when price goes up
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Deflation
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a persistent fall in the general level of prices. Creates uncertainty and discourages investment.
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Macroeconomics
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examines the economy as a whole
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GDP includes goods and services
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tangible intangible
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GDP=
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C+I+G+NX (Consumption, Investments, Govt. purchases, and Net exports)
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Consumption
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total spending by household on goods and services
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Investment
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total spending on goods that will be used in the future to produce more goods
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Government Purchases
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all the spending on the goods and services purchased by the govt. at the federal, state, and local levels. (Aircraft carriers and paper clips)--> excludes transfer payments (ex. social security and unemployment)
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Net Exports
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=exports-imports. Exports-represent foreign spending on the US produced goods and services. Imports-are the portions of C,I,and G that are spent on goods and services produced abroad.
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Physical Capital
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Firms increase this by purchasing more equipment
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Human Capital
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firms and employees increase this through additional training and education
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Innovation
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new products and ideas brought to the market can cause output to go up, boosting GDP and bus. profits
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3 factors that affect growth:
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1. Population growth 2. Govt. spending 3. Foreign trade
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Unemployment Rate=
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(unemployed/labor force)
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Bernanke's take on why deflation is so bad:
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1. it kills new investment: bus. can't plan for future and do not invest 2. it places pressure on wages: if bus. receive less, wages don't rise and new hires are paid less 3. value of existing assets: i.e. homes, go down
