Economic Terms and Concepts Flashcards
Covers economic terms and concepts
Define “Price Elasticity”
If the price gets too high, a consumer will forego the purchase. (It’s a nonessential item)
Define “Deflation”
A decrease in overall price levels of goods and services.
Define “Disinflation”
A slowdown in the rate of inflation/rate of price increase of goods and services.
What is “Inflation?”
Prices go up, but productivity stays the same :(
What are the 3 primary measures for Inflation Rate?
- CPI - Consumer Price Index
- PPI - Producer Price Index
- GDP Deflator
What does the Consumer Price Index (CPI) do?
Measures overall price levels for a basket of goods and services consumers purchase
(e.g. housing, food, transportation, education, medical care, apparel, etc.)
What does the Producer Price Index (PPI) do?
Measures inflation rate for raw materials used in the manufacturing process
Define “Nominal GDP”
Measures the value of goods and services in current prices.
What economic factor can make Nominal GDP misleading?
Inflation
Define “Gross Domestic Product (GDP)” and its time measurement
Total final output of a country by its citizens AND foreigners in the country over a period of time.
Quarterly or annually
Define “Gross National Product (GNP)”
Measures total final output by the citizens of a country, whether produced domestically or in a foreign country.
(No foreigners)
Define “Real GDP”
Measures the value of goods and services at a base year price.
(Only changes when quantity of goods and services change, not price)
(1) describe what the Leading Economic Indicators (LEI) do and (2)How many are there?
They help anticipate the state of the US economy in the near future and there are 10.
Who calculates the LEI?
The Conference Board
Define “Cyclical Unemployment”
When there is an overall downturn in business activity and fewer goods are being produced.
(Decrease in demand for labor)
Define “Natural Rate of Unemployment”
Lowest unemployment rate where labor and product markets are in balance.
(Price and wage inflation is stable)
Define “Full Employment”
The rate of employment that exists when there is efficiency in the labor market.
Define “Structural Unemployment”
When there is inequality between the supply of adequately skilled workers and the demand for workers
Define “Frictional Unemployment”
When people are voluntarily unemployed because they are seeking other job opportunities and haven’t gotten it yet.
What does the Business Cycle measure?
Economic activity (GDP) over time
Define the “Equilibrium Price”
The theoretical price of a product or service where supply and demand meet
What is “Utility?”
The benefit firms and consumers receive when allocating or spending financial resources
What does the GDP Deflator do?
Measures the current price of goods and services (nominal GDP) relative to a base year (real GDP)
The measure of price increases or decreases
What does LIBOR stand for, and what is it?
London Inter-Bank Offer Rate
Rate that banks charge each other, usually in Eurodollars
What are the 2 types of interest rates?
- Fixed Rate
- Variable Rate
What does Open Market Operations refer to?
The process by which the Federal Reserve will buy or sell US Treasury securities
US Treasury Securities = T-Bills, Bonds, Notes, etc.
Explain “Federal Reserve Requirements”
The Federal Reserve requires a percentage of a bank’s customer deposits to be in the vault.
(Keeps a certain amount of money out of the market)
What are “Excess Reserves?”
They represent the amount of cash or deposits with the Federal Reserve in excess of the minimum amount required
What are the 3 tools of fiscal policy
- Taxes
- Spending
- Deficit Management
What are the 3 goals of the Federal Deposit Insurance Corporation (FDIC)
- Insure Deposits
- Manage Receiverships
- Supervise financial institutions for financial stability and consumer protection
