business cycle
recurring increases and decreases in the level of economic activity over periods of years; consists of peak, recession, trough, and expansion phases.
recession
A period of declining real GDP, accompanied by lower real income and higher unemployment.
real GDP
gross domestic product adjusted for inflation; gross domestic product in a year divided by the GDP price index for that year, the index expressed as a decimal.
nominal GDP
the GDP measured in terms of the price level at the time of measurement (unadjusted for inflation)
unemployment
the failure to use all available economic resources to produce desired goods and services; the failure of the economy to fully employ its labor force.
inflation
A rise in the general level of prices in an economy.
modern economic growth
the historically recent phenomenon in which nations for the first time have experienced sustained increases in real GDP per capita
saving
the accumulation of funds that results when people in an economy spend less (consume less) than their incomes during a given time period; example is a stock
investment
In economics, spending for the production and accumulation of capital and additions to inventories.
financial investment
the purchase of assets like stocks, bonds, and real estate in hope of reaping a financial gain
economic investment
has to do with the creation and expansion of business enterprises. only includes money spent purchasing newly created capital goods such as machines, tools, ect
expectations
the anticipations of consumers, firms, and others about future economic conditions.
shocks
sudden, unexpected changes in demand or supply
demand shocks
sudden, unexpected changes in demand
supply shocks
unexpected events that affect aggregate supply, sometimes only temporarily
inventory
goods that have been produced but remains unsold
inflexible prices "sticky prices
product prices that remain in place even though supply or demand has changed; stuck prices or sticky prices
flexible prices
product prices that freely move upward or downward when product demand or supply changes
opportunity cost
The amount of other products that must be forgone or sacrificed to produce a unit of a product.
scarcity
A situation in which unlimited wants exceed the limited resources available to fulfill those wants
PPC (Production Possibilities Curve)
a curve showing the different combinations of two goods or services that can be produced in a full employment, full production economy where the available supplies of resources and technology are fixed.
Explain why economists focus on GDP, inflation, and unemployment when assessing the health of an entire economy.
real GDP measures the value of all final goods and services produced in a country during a specific period of time, unemployment measures the percentage of all workers who are not able to find paid employment despite being willing and able to work at curr
Identify why saving and investment are key factors in promoting rising living standards.
investment increase the economy's future potential output level but must be funded b saving which only possible if reduce consumption. banks and other financial institutions help to convert saving into investment by taking the savings generated by househo
Describe why economist believe that "shocks' and "sticky prices" are responsible for short-run fluctuations in output and employment
consider a negative demand shock in which demand is unexpectedly low. Because prices are fixed, the lower-than- expected demand will result in unexpectedly slow sales. This will cause inventories to increase. If demand remains low for an extended period o
Characterize the degree to which various prices in the economy are sticky.
prices are inflexible in the short run for various reasons. Firms often attempt to set and maintain stable prices to please customers who like predictable prices because they make for easy planning. a firm with just a few competitors may be reluctant to c
Explain why the greater flexibility of prices as time passes causes economists to utilize different macroeconomic models for different time horizons.
Price stickiness moderate over time. As a result, economists have found it sensible to build separate economic models to different time horizons. For instance, some models are designed o reflect the high degree of price inflexibility that occurs in the im
Define economics and the features of the economic perspective
Economics is the social science that examines how individuals, institutions, and society make optimal choices under conditions of scarcity. The economic perspective includes three elements: scarcity and choice, purposeful behavior, and marginal analysis.
Apply production possibilities analysis; increasing opportunity costs; and economic growth.
An economy that is fully employed and thus operating on its production possibilities curve must sacrifice the output of some types of goods and services to increase the production of others. The gain of one type of good is always accompanied by an opportu
Explain how gross domestic product (GDP) is defined and measured.
GDP a basic measure of an economy's economic performance, is the market value of all final goods and services produced within the borders of a nation in a year. Final goods are those purchased by end users, whereas intermediate goods are those purchased f
Describe how expenditures on goods and services can be summed to determine GDP.
GDP may be calculated by summing total expenditures on all final output or by summing the income derived from the production of that output. By the expenditures approach, GDP is determined by adding consumer purchases of goods and servcies, gross investme
Discuss the nature and function of a GDP price index; and describe the difference between nominal GDP and real GDP
Price indexes are computed by dividing the price of a specific collection or market basket of output in a particular period by the prices of the same market basket in a base period and multiplying the result by 100. The GDP price index is used to adjust n
List and explain some limitations of the GDP measure.
GDP is a reasonably accurate and very useful indicator of a nation's economic performance, but has its limitations. it fails to account for non market and illegal transactions, changes in leisure and in product quality, the composition and distributions o
List two ways that economic growth is measured.
A nations's economic growth can be measured either as an increase in real GDP over time or as an increase in real GDP per capita over time.
Define "modern economic growth" and explain the institutional structures needed for an economy to experience it.
the historically recent phenomenon in which nations for the first time have experienced sustained increases in real GDP per capita. institutional structures that encourage savings, investment, and the development of new technologies promote growth that in
Identify the general supply; demand; and efficiency forces that give rise to economic growth.
the determinants of economic growth to which we can attribute changes in growth rates include four supply factors (changes in the quantity and quality of natural resources, changes in the quantity and quality of human resources, changes in the stock of ca
Describe "growth accounting" and the specific factors accounting for economic growth in the United States.
Growth accounting attributes increases in real GDP either to increases in the amount of labor being employed or to increases in the productivity of the labor being employed. Increases in U.S. real GDP are mostly the result of increases in labor productivi
Explain why the trend rate of U.S. productivity growth has increased since the earlier 1973-1995 period.
Over long time periods, the growth of labor productivity underlies an economy's growth of real wages and its standard of living. U.S. productivity rose by 2.4 percent annually between 1995 and 2012, compared to 1.5 percent annually between 1973 and 1995.
Describe the business cycle and its primary phases.
The United States and other industrial economies have gone through periods of fluctuations in real GDP, employment, and the price level. Although they have certain phases in common- peak, recession, trough, expansion- business cycles vary greatly in durat
Illustrate how unemployment is measured and explain the different types of unemployment.
Economists distinguish between frictional, structural, and cyclical unemployment. The full-employment or natural rate of unemployment, which is made up of frictional and structural unemployment, is currently between 5 and 6 percent. The presence of part-t
Explain how inflation is measured and distinguish between cost-push inflation and demand-pull inflation.
Inflation is a rise in the general price level and is measure in the United States by the Consumer Price Index (CPI). When inflation occurs, each dollar of income will buy fewer goods and services than before. That is, inflation reduces the purchasing pow
Relate how unanticipated inflation can redistribute real income.
Unanticipated inflation arbitrarily redistributes real income at the expense of fixed-income receivers, creditors, and savers. If inflation is anticipated, individuals and businesses may be able to take steps to lessen or eliminate adverse redistribution
Topic: Accounting for Growth, what is it and what ways does it grow.
to asses the relative importance of the supply-side elements that contribute to changes in real GDP; labor input v. labor productivity, technological advances, quantity of capital, education and training, and economic scale of resource allocations.
Topic: Assessing the Economys Performance, what is it and how is the economy's performance assessed.
national income accounting operates in much the same way for the economy as a whole. Including in the assessment of the economy are GDP, monetary measure of GDP, avoiding multiple counting, GDP excludes non production transactions, looking at GDP in spend
Topic: Categorizing Macroeconomic Models Using Price Stickiness
price stickiness moderates over time. remember fixed is inflexible cannot change it is for the long run. flexible can change in the short run. changes in demand for flexible model the price changes change in demanded for fixed model price is the same. sti
Topic: Economic Growth
define and measure economic growth as (a). increase in real GDP occurring over some time period (b) increase in real GDP per capita occurring over some time period. it has growth as a goal of course
How do you measure the number of years required to double real GDP?
Rule of 70. Years to double= 70/ Growth rate
what is the equation for finding real GDP per capita
real GDP per capita= real GDP / Population
Topic: How Sticky Are Prices?
product prices are particularly sticky in response to widespread macroeconomic and monetary disturbances
Topic: Inflation
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what does inflation mean
is the rise of general level of prices. example for understanding is when this occurs each dollar of income will buy few goods and services than before this occurred. it reduces the "purchasing power" of money. It does not mean that ll prices are rising.
How do you measure inflation
the main measure of inflation in the United States is the Consumer Price Index (CPI)
what is the equation for CPI
Price index = price of the most recent market basket in the particular year/ price estimate of the market basket in base year x 100.
what is deflation
when price levels decline
what are the types of inflation
There are two types of inflation. Demand-Pull Inflation is caused by excess of total spending beyond the economy's capacity to produce. Cost-push inflation is when the rising prices in terms of factors that raise per-unit production costs
what is the equation for per-unit production cost
total input cost/ units of output
core inflation
the underlying increases in the CPI after volatile food and energy prices are removed
Topic: Institutional structures that promote growth
strong property rights, patents and copyrights, efficient financial institutions, literacy and widespread education, free trade, and a competitive market system.
Topic: nominal GDP versus Real GDP
A GDP based on the prices that prevailed when the output was produced is called "unadjusted GDP" or nominal GDP. Real GDP that has been deflated or inflated to reflect changes in price level is called adjusted GDP or real GDP.
What is price index
a measure of the price of a specified collection of goods called a "market basket" in a given year as compared to the price of an identical or highly similar collection of goods and services in a reference year. PI = price of market basket in specific yea
How do you find Real GDP when only given nominal GDP and the price index
nominal GDP/ price index
what is an alternate method to calculate GDP other than the income calculation.
price index= nominal GDP/real GDP
Topic: Performance and Policy
the business cycle affects the performance and policy of the economy. The factors that affect business cycle to go to recession or expansion is the value of final goods and services produced (GDP) , unemployment rate, and inflation rate
Topic: Production Possibilities Analysis
indicates the various maximum combinations of products an economy can produce with fixed quantity and quality of natural, human, and capital resources and its stock of technological knowledge. an improvement in any of the supply factors will push the prod
Topic: Production Possibilities Model
Letter E is unattainable where as ABC are optimal output combination and going from D to the line is economic growth
Topic: Redistribution Effects of Inflation
inflation redistribution helps some people, hurts some people, and some unaffected. there is a difference between money (nominal) income and real income. nominal income is the number of dollars received as wages, rent, interest, or profit. real income is
Topic: Saving, Investment, and Choosing between Present and Future Consumption
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Topic: Shortcomings of GDP
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Topic: The Business Cycle
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Topic: The Economic Perspective
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Topic: The Expenditures Approach
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Topic: The Rise in the Average Rate of Productivity Growth
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Topic: Uncertainty, Expectations, and Shocks
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Topic: Unemployment
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national income accounting
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intermediate goods
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final goods
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multiple counting
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value added
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expenditures approach
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income approach
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personal consumption expenditures (C)
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durable goods
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nondurable goods
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services
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gross private domestic investment (Ig)
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net private domestic investment
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government purchases (G)
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net exports (Xn)
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taxes on production and imports
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national income
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consumption of fixed capital
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net domestic product (NDP)
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personal income (PI)
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disposable income (DI)
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gross domestic product (GDP)
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price index
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base year
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economic growth
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real GDP per capita
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rule of 70
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modern economic growth
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leader countries
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follower countries
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supply factors
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demand factor
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efficiency factor
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labor productivity
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labor force participation rate
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growth accounting
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infrastructure
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human capital
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economies of scale
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information technology
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start-up firms
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increasing returns
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network effects
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learning by doing
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business cycle
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peak
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recession
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trough
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expansion
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labor force
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unemployment rate
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discouraged workers
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frictional unemployment
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structural unemployment
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cyclical unemployment
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full employment rate of employment
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natural rate of unemployment (NRU)
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potential output
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GDP gap
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Okun's law
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inflation
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Consumer Price Index (CPI)
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deflation
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demand-pull inflation
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cost-push inflation
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per-unit production costs
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core inflation
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nominal income
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