Definitions Flashcards
Three Goals of Macroeconomics
Economic Growth
Stable Prices
Full Employment
Economic Growth
achieved by increasing the economy’s ability to produce goods and services
- indicated by measuring the growth rate of production
- indicated by increases in the quantities of the resources used to produce goods
Stable Prices
achieved by avoiding or limiting fluctuations and inflationary expansions of business cycles
-indicated by month-to-month and year-to-year changes in various economic measures
Full Employment
achieved when all available resources are used to produce goods and services
-commonly indicated by the employment of labor resources
Peak
the transition of a business cycle from an expansion and a contraction
Trough
a low turning point or local minimum of a business cycle
Expansion
the period of a business cycle during which total production and total employment are increasing
Contraction
the economy as a whole is in a decline
- occurs after the business cycle peaks, but before it becomes a trough
- said to occur when a country’s real GDP has declined for 2 or more consecutive quarters
Recession
a general slowdown in economic activity
-occurs when there is a widespread drop in spending
Depression
a sustained, long-term downturn in economic activity in one or more economies
-characterized by its length; by abnormally large increases in unemployment
Real GDP
measure of value of economic output adjusted for price changes ( taking the quantities of one year and multiplying them by the base year prices)
Price Level
measure of the average foods and services in the economy
Natural Rate of Unemployment
normal rate of unemployment consisting of frictional unemployment plus structural unemployment
Frictional Unemployment
short-term unemployment that arises from the process of matching workers with jobs
Structural Unemployment
unemployment that arises from a persistent mismatch between the skills and attributes of workers and the requirements of jobs
Potential GDP
The level of Real GDP attained when all firms are producing at capacity
Consumer Confidence
measures the degree of optimism that consumers feel about the overall state of the economy and their personal financial situation
Producer Confidence
sentiment indicator for the manufacturing industry
Procyclical Measures
describes how an economic quantity is related to economic fluctuations
-moving in the same direction of the overall economic cycle: rising when the economy is strengthening and falling when weakening
Countercyclical Measures
describes how an economic quantity is related to economic fluctuations
-moving in the opposite direction of the overall economic cycle: rising when the economy is weakening, and falling when the economy is strengthening
Taxes
an involuntary fee levied on corporations or individuals that is enforced by a level of government in order to finance government activities
Transfer Payments
a payment to individuals by the federal government through various social benefit programs
Benefits of Recession
enables assessment of the effectiveness of a family budget and community crisis management plans
-encourage self employment
Stagflation
a condition of slow economic growth and relatively high unemployment
Full Employment Equilibrium
level of employment rates when there is NO CYCLICAL UNEMPLOYMENT
- when the economy is employing all of its available resources
- potential GDP = real GDP
Recessionary Gap
summarizes the situation where an economy is operating at or below its full employment equilibrium
-potential GDP > real GDP
Inflationary Gap:
amount by which the real GDP exceeds potential GDP
-above full employment equilibrium
Short Run AS Curve
captures the relationship between real production and the price level
Long Run AS Curve
conceptual time or period in which there are no fixed factors of production as to changing the output level by changing the capital stock or by entering or leaving an industry
Price Index
normalized average of prices for a given class of goods or services in a given region, during a given interval of time
Money
any asset that people are generally willing to accept in exchange for goods and services or for payments of debts
Commodity
a good used as money that also has value of independent of its use as money
Fiat Money
money; such as paper currency; that is authorized by a central bank or government body and that doesn’t have to be exchanged by the central bank for gold or some other commodity
