Term
| Macroeconomics Indicators |
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Definition
measures of economic performance
Ex. unemployment rate |
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| moves in the opposite direction to real GDP with a slight lag during a business cycle |
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| short-term unemplyment that arises from the normal turnover in labor markets (e.g., workers relocationg to a different region, looking for a higher paying job, etc) |
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| unemployment arising form lack of skill; often results from technological progress (typewriters being replaced by computers). Usually, lasts longer than frictional unemployment (takes time to aquire a new skill) |
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Definition
| unemployment caused by a business cycle (recession) |
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Term
| Natural Rate of Unemployment |
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Definition
| the "normal" rate of unemployment , consisting of frictional unemployment plys structural unemployment, which will exist when Real GDP equals potential GDP |
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Term
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Definition
Bargain with employers for higher wages and better working conditions for their members
Protect insiders (members of the union) but hurt outsiders, causing unemployment
Labor markets in Europe are more unionized than in the U.S. |
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Definition
The percentage increase in the price level from one year to the next and shows the change in the cost of living.
Inflation rate can be calculated using different measures of aggregated price level, such as the GDP deflator, consumer price index, producer price indes
Inflation calculated using the GDP deflator may not reflect the true change in the cost of living of a typical family; GDP deflator is very broad because it includes all goods and services produced in a given year. |
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Term
| Consumer price index (CPI) |
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Definition
| an average of the prices of the goods and services purchased by a typical urban family |
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Term
| CPI Bias #1: Substitution Bias |
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Definition
| as some goods get more expensive, consumers substitute them with cheaper goods; the CPI is measured on a fixed market base and, therefore, does not reflect this substitution. |
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Term
| CPI Bias #2: Increase in Quality Bias: |
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Definition
| some increases in prices reflect an increase in quality of goods and are not just pure inflation. |
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Term
| CPI Bias #3: New Product Bias |
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Definition
| some new goods (especially electronics) get considerable cheaper immediately after they've been introduced to consumers; the CPI fails to reflect this |
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| internet shopping becomes increasingly popular; the CPI does not reflect this because the BLS collects receipts from actual stores and not internet retailers |
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| is the stated interest rate on a loan (that a bank charges you) |
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| is the nominal interest rate minus the inflation rate |
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Definition
is the quantity of goods and services that can be produced by one worker or by one hour of work
Determined by two key factors:
1. the quantity of capital per hour worked
2. the level of technology |
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| is manufactured goods that are used to produce other goods and services |
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Definition
| is acquisition of capital by firms |
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Definition
| is an increase in the quantity of output firms can produce using a given quantity of inputs; is more important for economic growth than capital per hours worked |
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| is the system of financial markets and financial intermediaries through which firms acquire funds from households to make investments |
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| are markets where financial securtites, such as stocks and bonds, are bought and sold. |
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| are firms, such as banks, mutual funds, pension funds, and insurance compandies, that borrow funds from savers and lend them to borrowers. Households' savings are transformed into firms' inverstments |
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| Market for loanable funds |
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Definition
| is the interaction of borrowers and lenders that determines the market interest rate and the quantity of loanable funds exchanged |
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Term
| Global Convergence Theory |
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Definition
| a theory that there will be an inverse relationship between the rate of growth and living standards or real GDP per capita (in other words, poor countries should grow faster than wealthy countries) |
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| Idea 1 behind global convergence |
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Definition
| technology and information are difficult to control and hence move repidly across borders |
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Term
| Idea 2 behind global convergence |
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Definition
| there are diminishing returns to capital investment |
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| Reasons why global convergence isn't seen by developing countries |
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Definition
1. lack of economic freedom and private property rights
2. political instability
3. low rates of saving and investment
4. poor public education and health
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| a higher-than-market wage that a firm pays to increase worker productivity |
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| a measure of the aerage prices of goods and services in the economy |
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| a decline in the price level |
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| the process by which rising productivity increases the average standard of living |
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| the level of GDP attained when all firms are producing at capacity |
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| a decline in private expenditures as a result of an increase in government puchases |
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