Unit 13: Economic Fluctuations & Unemployment Flashcards
Reverse Casuality
A two-way casual relationship in which A affects B and B also affects A
Gross Domestic Product (GDP)
A measure of the market value of the output of the economy in a given period
Recession
A period when output is declining. It is over once the economy begins to grow again.
Can also be when level of output is below normal level, even when the economy is growing
Business Cycle
Alternating periods of faster and slower growth rate
Economy goes from boom to recession back to boom
Okun’s Law
There exists a systematic relationship between unemployment and output
Aggregate Output
Total output in an economy across all sectors and regions
National Accounts
System used for measuring overall output and expenditure in a country
Value Added
For a production process this is the value of output minus the value of all inputs.
Value added is equal profits before taxes plus wages
Imports
Goods and services produced in other countries and purchased by domestic households, firms, and the government
Exports
Goods and services produced in a particular country and sold to households, firms, and governments in other countries
Consumption
Expenditure on consumer goods including short-lived and long-lived goods
Investment
Expenditure on newly produced capital goods and buildings
Inventory
Goods held by a firm prior to sale or use, including raw materials , and partially-finished or finished goods intended for sale
Government Spending
Expenditure by the government to purchase goods and services
Does not include spending on transfers when used as a component of aggregate demand
Government Transfers
Spending by the government in the form of payments to households or individuals
Ex. Unemployment benefits and pensions
Trade Balance
Value of exports minus the value of imports
Trade Deficit
A country’s negative trade balance (imports more than it exports)
Trade Surplus
A country’s positive trade balance (exports more than it imports)
Aggregate Demand
Total of the components of spending in the economy. Total amount of demand for the goods and services produced in the economy
Shock
An exogenous change in the economy, or an unexpected event
Self-Insurance
Saving by a household in order to maintain its consumption when there is a temporary fall in income or need for a greater expenditure
Co-Insurance
A means of pooling savings across households in order for a household to be able to maintain consumption when it experiences a temporary fall in income or the need for greater expenditure
Weakness of Will
Characteristic of human behavior that leads people to be unable to carry out plans or commit to beneficial future events
Ex. Dieting or foregoing some other present pleasure
Capacity Utilization Rate
A measure of the extent to which a firm, industry, or entire economy is producing as much as the stock of its capital goods and current knowledge would allow
Inflation
An increase in the general price level in the economy, measured over a year
Deflation
A decrease in the general price level
Consumer Price Index (CPI)
A measure of the general level of price that consumers have to pay for goods and services
GDP Deflator
A measure of the level of prices for domestically produced output
