Term
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Definition
normal unemployment resulting from workers routinely changing jobs or from workers being temporarily laid off.
Increase by reduction in the average age of the workforce. |
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Term
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Definition
a. Jobs available in the market do not correspond to the skills of the work force, and
b. Unemployed workers do not live where the jobs are located. |
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Term
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Definition
When real GDP is below the potential level of output,
cyclical unemployment is positive. When real GDP is above the potential level of
output, cyclical unemployment is negative. Thus, cyclical unemployment rises during a
recession and falls during an expansion. |
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Term
| Natural Rate of Unemployment |
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Definition
| sum of frictional, structural, and seasonal unemployment |
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Term
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Definition
there is no cyclical
unemployment. Full employment does not mean zero unemployment. When the
economy is operating at full employment, there is still frictional, structural, and seasonal
unemployment. |
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Term
| THE LINK BETWEEN UNEMPLOYMENT AND OUTPUT (REAL GDP) |
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Definition
The unemployment rate and national output (real GDP) tend to move in opposite directions.
That is, when real GDP is rising, the unemployment rate tends to be falling. |
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Term
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Definition
sustained increase in the general prices of goods and services.
It occurs when prices on average are increasing over time. |
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Term
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Definition
Deflation is defined as a sustained decrease in the general prices of goods and
services. It occurs when prices on average are falling over time. Most economists
believe deflation is a much bigger economic problem than inflation. |
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Term
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Definition
he inflation or deflation rate is typically measured as the percentage change in the
Consumer Price Index (CPI) from one period to the next. |
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Term
| Consumer Price Index (CPI) |
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Definition
The CPI is a measure of the overall cost of a fixed basket of goods and services
purchased by an average household. |
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Term
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Definition
| inflation rate=(CPI1-CPI0)*100/CPI0 |
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Term
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Definition
| caused by increases in aggregate demand. AD^ GDP^ P^ |
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Term
| Demand-Pull Inflation caused factor |
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Definition
| a. Increases in government spending, b. Decreases in taxes, c. Increases in wealth, and d. Increases in the money supply. |
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Term
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Definition
| SRAS< GDP< P> a. An increase in oil prices,(input prices raw material prices or b. An increase in nominal wages. |
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Term
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Definition
inflation makes money and lose purchasing power
During a period of inflation, those with a fixed amount of money or income (e.g., retired
persons) will be hurt (i.e., their purchasing power will be eroded). Similarly, firms that
lend out money at fixed interest rates are likely to be hurt by inflation. |
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Term
| Holding Monetary Liabilities |
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Definition
inflation makes pays back on fixed loan a good deal
During a period of inflation, those with a fixed amount of debt (e.g., those with home
mortgages) will be aided (i.e., the debt will be repaid with inflated dollars). Thus,
inflation also tends to be benefit firms with large amounts of outstanding debt. |
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Term
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Definition
no inflation adjustment
The nominal interest rate is the amount of interest paid (or earned) measured in current dollars. |
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Term
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Definition
| Real Interest Rate = Nominal Interest Rate – Inflation Rate |
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Term
| DEFINITION OF MONEY AND THE MONEY SUPPLY |
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Definition
The money supply is defined as the stock of all liquid assets available for
transactions in the economy at any given point in time. |
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Term
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Definition
M1 is defined broadly as money that is used for purchases of goods and services. It typically
includes coins, currency, checkable deposits (accounts that allow holders to write checks
against interest-bearing funds within them), and traveler's checks. M1 does not typically
include savings accounts or certificates of deposit (CDs). |
|
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Term
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Definition
M2 is defined broadly as M1 plus liquid assets that cannot be used as a medium of exchange
but that can be converted easily into checkable deposits or other components of M1. These
include time certificates of deposit less than $100,000, money market deposit accounts at
banks, mutual fund accounts, and savings accounts. |
|
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Term
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Definition
| M3 includes all items in M2 as well as time certificates of deposit in excess of $100,000. |
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Term
| MONETARY POLICY AND THE MONEY SUPPLY |
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Definition
Monetary policy is the use of the money supply to stabilize the economy. The Federal
Reserve uses monetary policy to increase or decrease the money supply in an effort to
promote price stability and full employment. |
|
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Term
| Open Market Operations (OMO) |
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Definition
Open Market Operations (OMO) consist of the purchase and sale of government
securities (Treasury Bills and bonds) in the open market.
A. Increase in the Money Supply> AD> GDP> P>
b.When the Fed purchases government securities, it increases the money supply. (Expansionary)
Decrease in the Money Supply
When the Fed sells government securities, it decreases the money supply< AD< GDP< P< Contractionary |
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Term
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Definition
| The discount rate is the interest rate the Fed charges member banks for short-term (normally overnight) loans. |
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Term
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Definition
Raising the discount rate discourages borrowing by member banks and
decreases the money supply. DR> I> Borrow< Spend< AD< GDP< P< Contractionary |
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Term
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Definition
Lowering the discount rate encourages borrowing by member banks and
increases the money supply.
DR< I< Borrow> Spend>
AD> GDP> P>
Expansionary |
|
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Term
| Changes in the Required Reserve Ratio (RRR) |
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Definition
The Required Reserve Ratio (RRR) is the fraction of total deposits banks must hold in
reserve.
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Term
| Raising the reserve requirement |
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Definition
decreases the money supply.
RRR↑ Spending↓ AD↓ GDP↓
P↓ Contractionary |
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Term
| Lowering the reserve requirement |
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Definition
RRR↓ increases the money supply Spend↑ AD↑ GDP↑ P↑
Expansionary |
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Term
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Definition
G Government purchases of goods and services
I Gross private domestic investment (nonresidential fixed investment, residential fixed
investment, and change in business inventories)
C Personal consumption expenditures (durable goods, non-durable goods, and services)
E Net exports (exports minus imports)
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Term
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Definition
I Income of proprietors
P Profits of corporations
I Interest (net)
R Rental income
A Adjustments for net foreign income and miscellaneous items
T Taxes (indirect business taxes)
E Employee compensation (wages)
D Depreciation (also known as capital consumption allowance)
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Term
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Definition
|
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Term
| Gross National Product (GNP) |
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Definition
the market value of final goods and services produced by residents
of a country in a given time period. GNP differs from GDP because GNP includes
goods and services that are produced overseas by U.S. firms and excludes goods and
services that are produced domestically by foreign firms.
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Term
| Net National Product (NNP) |
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Definition
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Term
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Definition
|
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Term
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Definition
NI
Less:
Undistributed corporate profits (retained earnings)
Net interest
Contributions for social measures (social security contributions)
Corporate income taxes
Plus:
Government transfer payments to individuals
Personal interest income
Business transfer payments/dividends
=
PI
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Term
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Definition
|
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Term
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Definition
measures the ratio of the number of people classified as unemployed to
the total labor force. The total labor force includes all non-institutionalized individuals 16 years of
age or older who are either working or actively looking for work.
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Term
| Unemployment rate formula |
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Definition
| Unemployment rate=(number of unemployed/total labor force)*100 |
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Term
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Definition
| The combination of falling national output and a rising price level |
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Term
| Expansionary monetary policy |
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Definition
(purchase security in OMO, ↓DR,↓RRR)→↑MS→↓I
→↑AD→↑GDP, ↑P |
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Term
| contractionary Monetary policy |
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Definition
(Sell security in OMO,↑DR,↑RRR)→↓MS→↑I
→AD↓,GDP↓,P↓ |
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