Term
| Gross domestic product (GDP) |
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Definition
| The market value of the final goods and services produced within a country in a given time period. |
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Term
| What is the expenditure approach to calculating GDP |
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Definition
The summation of consumption, investment, government expenditure, exports minus imports.
GDP = Consumption + Investment + Government Expenditure + Exports –Imports |
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Term
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Definition
| an item that is bought by its final user during a specified time period. |
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Term
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Definition
| produced by one firm, bought by another firm and used as a component of a final good |
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Term
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Definition
| Transfer payments are payments to individuals, businesses, other levels of government, and the rest of the world that are not made to purchase a good or service. |
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Term
| Personal consumption expenditures(C) |
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Definition
| expenditures by U.S. households on goods and services produced in the United States and in the rest of the world. Examples could include pizza, toilet paper, gum, gasoline, shoes, tvs |
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Term
| Gross private domestic investment(I) |
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Definition
| expenditure on capital equipmentand buildings by firms, the additions to business inventories, and expenditure on new homes by households. Examples could include a new bulldozer, processing plant, new home, additionalbusiness inventory. |
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Term
| Government expenditure on goods and services(G) |
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Definition
| expenditure by all levels of government on goods and services. Examples could include military equipment, garbage collection, library services, road maintenance. This does not include transfer payments. |
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Term
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Definition
| goods and services producedin the U.S. and consumed in another country. Examples could include oranges, military equipment, aircraft |
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Term
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Definition
| goods and services produced in another country and consumed in the U.S. Examples could include bananas, shoes, electronics, cars. |
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Term
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Definition
| Nominal GDPis the value of final goods and services produced in a given year valued at the prices of that year |
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Term
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Definition
| is the value of final goods and services produced in a given year when valued at the prices of a base year. |
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Term
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Definition
| Potential GDP is the value of real GDP when all the economy’s labor, capital, land and entrepreneurial ability are fully employed. Potential GDP is the maximum amount of production that can be produced while avoiding shortages of labor, capital, land, and entrepreneurship that would bring rising inflation. |
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Term
| What are the four limitations of using real GDP |
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Definition
| The omission of household production: Because these productive activities are not traded in markets, they are not included in GDP.Underground economic activity: This part of the economy is purposely hidden from the view of government to avoid taxes or because the activity is illegal. Because underground economic activity is unreported, it is omitted from GDP.Leisure time: We value leisure time. The more leisure time we have the better off we are. However, the more leisure time we utilize, the less time we work and production falls.Environmental Quality: Economic activity directly influences the quality of the environment. With more production, we damage the environment and deplete nonrenewable natural resources. |
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Term
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Definition
| the sum of the employed and the unemployed |
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Term
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Definition
Unemployed
----------- X 100
Labor Force |
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Term
| labor force participation rate |
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Definition
Labor Force
---------------------- X 100
Working Age population |
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Term
| employment-to-population ratio |
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Definition
Employed
------------------ X 100
Working Age population |
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Term
| marginally attached workers |
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Definition
| marginally attached workers are those that want to work but are not looking for work. |
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Term
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Definition
| A discouraged worker is a marginally attached worker who has stopped looking for a job because of repeated failure to find one. |
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Term
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Definition
| the unemployment that arises from normal labor turnover. These workers are searching for jobs. |
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Term
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Definition
| the unemployment that arises when changes in technology or international competition change the skills needed to perform jobs or change the locations of jobs. |
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Term
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Definition
| the fluctuating unemployment over the business cycle. Cyclical unemployment increases during a recession and decreases during an expansion. |
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Term
| natural unemployment rate |
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Definition
| The natural unemployment rate is the unemployment rate that occurs when the economy is at full employment.The natural unemployment rate = frictional unemployment + structural unemployment |
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Term
| What are four main sources of bias that indicate that the CPI overstates the actual inflation rate |
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Definition
| New Goods BiasQuality Change BiasCommodity Substitution BiasOutlet Substitution Bias |
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Term
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Definition
| An inflation rate of 50% a monthor higher |
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Term
| Growth rate of real GDP (economic growth rate) between two years |
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Definition
GDPY2-GDPY1
------------ X 100
GDPY1 |
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Term
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Definition
Real GDP
---------
Population |
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Term
| Real GDP per person growth rate |
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Definition
| real GDP growth rate minus population growth rate |
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Term
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Definition
Rule stating 70/interest rate= number of years to double GDP.
70/5=14 years |
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Term
| aggregate production function |
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Definition
| The aggregate production function shows the relationship betweenreal GDP andthe quantity of labor employed. |
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Term
| law of diminishing returns |
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Definition
| when an additional unit of labor produces less output than the previous unit. |
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Term
| what are the three influences on labor productivity growth? |
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Definition
| Physical capital growth: As the amount of capital per worker increases, labor productivity also increases. Human capital growth:Human capital is the accumulated skill and knowledge of human beings and is the most fundamental source of labor productivity growth. Technological advances:Technological change is the discovery and application of new technologies. |
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Term
| What are the 3 functions of money |
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Definition
| medium of exchange, unit of account, and store of value |
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Term
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Definition
| M1 includes currency, traveler’s checks and checking deposits |
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Term
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Definition
| M2 includes all of M1, time deposits, savings deposits, and money market mutual funds |
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Term
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Definition
| The federal funds rate is the interest rate banks charge other banks for overnight loans. |
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Term
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Definition
| The discount rate is the interest rate the Fed charges on its last resort loans. |
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Term
| what are the three key elements in the structure of the Federal Reserve System |
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Definition
The Board of Governors: 7 members appointed by the President of the United States and confirmed by the Senate. Each serves a 14-year term.
The Federal Reserve Banks: There are 12 Federal Reserve banks, one for each of the 12 Federal Reserve districts. These provide check-clearing services to banks, hold reserve accounts of banks, lend reserves to banks, and issue the bank notes that circulate as currency.The
Federal Open Market Committee:This is the main policy-making organof the Federal Reserve System. The FOMC meets approximately every 6 weeks to review the state of economy and to decide the actions to be carried out by the New York Fed. |
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Term
| What are Fed’s three policy tools |
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Definition
Required Reserve Ratio
Lender of last resort
Open Market Operations |
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Term
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Definition
| The Fed requires that depository institutions hold a minimum percentage of deposits as reserves. |
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Term
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Definition
| The Fed can lend money to depository institutions that are short of reserves. The discount rate is the interest rate the Fed chargeson last resort loans. |
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Term
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Definition
| An open market operation is the purchase or sale of government securities (U.S. Treasury bills and bonds). |
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Term
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Definition
| the average number of timesper year a dollar is spent on goods and services in GDP |
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Term
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Definition
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