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Investment
Buying machines, tools, and factories
- Interest rates down = more investment
- Does not include: stocks, bonds, retirement accounts
Human Capital
Key shifter of Production Possibilities Curve (PPC), the intelligence and skills that increases productivity
GDP (Included and not included)
Included: private consumption (C) + gross investment (I) + government spending (G) + (exports – imports)
Unincluded: activity between businesses, sales of goods or services produced outside the country, illegal goods or services, intermediate goods (unfinished goods), transfer payments, and used goods.
Frictional Unemployment
The time between jobs when a worker is searching for a new job or transitioning from one job to another
Structural Unemployment
Mismatch between the skills of unemployed workers and the skills needed for available jobs (Technology replacing)
Cyclical Unemployment
Directly related to business cycle swings, like expansions or
recessions
Sticky Wages
Explains why the short run aggregate supply curve was upwards sloping
Stagflation
SRAS shifting to the left (decreasing)
Higher price level at less output
- Unemployment and inflation high
Cost-push and demand-pull inflation
Cost-Push = Theorizes that as costs to producers increase from things like rising wages, these higher costs are passed on to consumers.
Demand-Pull = Takes the position that prices rise when aggregate demand exceeds the supply of available goods for sustained periods of time
Fiscal policy
Laws that reduce unemployment and increase GDP (Close recessionary gap)
ex: Government Spending and Taxes
Monetary policy
Adjusting money supply - Reserve Requirement, Discount Rate, and Open Market Operations
Velocity of money
Quantity of theory of money - how much dollar is spent and re-spent over time
M1 Money Supply
Basic measure of money by economists, includes money not held by US Treasury - Includes cash, checkable (demand) deposits, and traveler’s checks, is considered the basic measure because it is considered the most liquid
M2 Money Supply
Everything in M1 but plus saving deposits in banks and time deposits
Real interest rates
Percentage increase in purchasing power a borrower pays (Nominal interest rate - expected inflation)
Nominal interest rates
The percentage increase in money that the borrower pays not adjusting for inflation
(Real interest rate + expected inflation)
Debt
Cumulative amount of money the government has borrowed throughout history
Deficit
Drives the amount of money the government borrows in any single year (adds up to debt)
Crowding Out
Idea when the government borrows and increases interest rates that causes investment to go down
Balance of trade (net export)
The difference between the value of a country’s imports and exports for a given period and is the largest component of a country’s balance of payments
Balance of payments (CA & CFA)
Measure of all international transactions in a year. This includes the sale and purchase of goods/services and assets. There are two accounts within the balance of payments: (1) the current account, and (2) the capital account.
