ECON 200 Handout 2 Key Terms

Question 1

Gross Domestic Product (GDP)

Answer 1

The market value of all newly produced final goods and services produced within a country’s borders over a designated period

Question 2

Intermediate Goods

Answer 2

Component parts of produced goods

Question 3

Gross National Product (GNP)

Answer 3

The market value of all newly produced final goods and services produced by factors of production owned by the country’s residents over a designated period

Question 4

Factors of Production

Answer 4

Labor, capital

Question 5

Inflation (pi)

Answer 5

Process of prices rising on average across an economy

Question 6

The Price Level (P)

Answer 6

The price of a good/service

Question 7

Index

Answer 7

A measure that is unitless, but which accurately captures relative values

Question 8

Consumer Price Index (CPI)

Answer 8

The most commonly known and used price index

Question 9

Base Year

Answer 9

The year whose prices become reference prices

Question 10

Nominal GDP

Answer 10

GDP not adjusted for inflation

Question 11

Real GDP

Answer 11

GDP adjusted for inflation

Question 12

Cost of Living Adjustments (COLA)

Answer 12

Made to many salaries as well as social security payments to assure they maintain their purchasing power when there is inflation

Question 13

Indexing (for Inflation)

Answer 13

The act of adjusting nominal amounts for inflation (so as to keep real amounts unchanged)

Question 14

Substitution Bias

Answer 14

Exists because the CPI assumes the same, fixed basket of goods over the years in which it is measured without allowing for substitutions within the basket

Question 15

Quality Bias

Answer 15

Exists because most goods in the CPI basket are of better quality over time

Question 16

GDP Deflator

Answer 16

The resulting price index that comes from comparing Nominal and Real GDP

Question 17

Debt-Instruments

Answer 17

Written promises to deliver a certain amount of money on specified future dates

Question 18

Mature

Answer 18

End

Question 19

Bonds

Answer 19

A type of debt-instrument where you sell someone a promise to give someone a certain amount of money

Question 20

Nominal Interest Rate

Answer 20

Interest rate not adjusted for inflation

Question 21

Promissory Note

Answer 21

A type of debt-instrument where the bank has someone sign a note with a schedule of payments to the bank

Question 22

Ex Ante Real Interest Rate (r)

Answer 22

r=i-pi^e

Question 23

Ex Post Real Interest Rate (R)

Answer 23

R=i-pi

Question 24

Labor Force (LF)

Answer 24

Those who want to work and are either employed or unhappy that they cannot land jobs and are unemployed

Question 25

Underemployment

Answer 25

Settling by workers for jobs underneath their skill levels

Question 26

Discouraged Workers

Answer 26

Unemployed by theory but not by the measure of unemployment

Question 27

Unemployment Benefits

Answer 27

Money provided by the government to those who are not working but claim to be looking for work

Question 28

Participation Rate

Answer 28

The percentage of potential workers in an economy that belongs to the labor force

Question 29

Working-Age Population

Answer 29

The government measure for the potential workers, which is the population minus the children and the elderly

Question 30

Impute

Answer 30

Calculate and assign