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| The study of the functioning of the economy as a whole and also of how macroeconomic policies affect the economy. |
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| Government actions designed to affect the performance of the economy as a whole. |
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| The degree to which people have access to goods and services that make their lives easier, healthier, safer, and more enjoyable. |
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| A process of steady increases in the quantity and quality of the goods and services the economy can produce |
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| Number of people unemployed / Labor force |
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| Measures how fast the average price level is changing over time |
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| Determination of the nation’s money supply. Controlled by the central bank or, in the U.S., the Federal Reserve System (Fed) |
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| Decisions that determine the government’s budget, including the amount and composition of government expenditures and government revenues |
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| Occurs when government spending is greater than tax revenue. |
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| Occurs when government spending is less than tax revenue. |
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| Government policies aimed at changing the underlying structure, or institutions, of the nation’s economy |
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| Addresses the economic consequences of a particular event or policy, not whether those consequences are desirable |
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| Addresses the question of whether a policy should be used; inevitably involves the values of the person doing the analysis. |
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| The adding up of the individual economic variables to obtain economy wide totals. |
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| The market value of the final goods and services produced in a country during a given period |
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| Used to aggregate the quantities of different goods and services into one measurement. More expensive items receive a higher weight than cheaper items. |
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| Goods or services consumed by the ultimate user counted as part of the GDP. |
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| Intermediate Goods or Services |
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| Goods or services used up in the production of final goods and services and therefore not counted as part of GDP |
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| For any firm, the market value of its product or service minus the cost of inputs purchased from other firms |
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| Only production that takes place within a country’s border |
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| Counts only goods produced during the defined period such as a calendar year |
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| Consumption Expenditure, or simply Consumption |
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| Spending by households on goods and services, such as food, clothing, and entertainment. |
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| Spending by firms on final goods and services, primarily capital goods and housing |
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| Purchase by federal, state, and local governments of final goods and services |
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| A measure of GDP in which the quantities produced are valued at current-year price (measures the current dollar valueof production). |
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| A measure of GDP in which the quantities produced are valued at the prices in a base year rather than at current prices (measures the actual physical volumeof production and is adjusted for inflation) |
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| Labor force / Population 16 and over |
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| A period during which an individual is continuously unemployed |
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| The length of an unemployment spell |
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| Consumer Price Index (CPI) |
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Definition
| Measures the average level of prices relative to prices in the base year. (For any period, measures the cost in that period of a standard basket of goods and services relative to the cost of the same basket of goods and services in a fixed year, called the base year.) |
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| A measure of the average price of a given class of goods or services relative to the price of the same goods and services in a base year |
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| The annual percentage rate of change in the price level |
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| A situation in which the prices of most goods and services are falling over time so that inflation is negative |
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| A quantity that is measured in terms of its current dollar value |
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| A quantity that is measured in physical terms --for example, in terms of quantities of goods and services |
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| Deflating (a nominal quantity) |
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| A process of dividing a nominal quantity by a price index (such as the CPI) to express the quantity in real terms |
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The wage paid to workers measured in terms of real purchasing power
(calculated by dividing the nominal (dollar) wage by the CPI for that period). |
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| The practice of increasing a nominal quantity each period by an amount equal to the percentage increase in a specified price index (prevents the purchasing power of the nominal quantity from being eroded by inflation). |
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| A measure of the overall level of prices at a particular point in time as measured by a price index such as the CPI |
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| The price of a specific good or service in comparisonto the prices of other goods and services |
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| The use of resources to economize on holding cash during periods of high inflation |
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| “Noise” in the Price System |
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Definition
Inflation obscures the information transmitted by prices and reduces the efficiency of the market system |
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| Nominal Interest Rate (market interest rate) |
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Definition
| The annual percentage increase in the nominal value of a financial asset |
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Definition
The annual percentage increase in the purchasing power of a financial asset
(equals the nominal interest rate on that asset minus the inflation rate). |
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| The tendency for nominal interest rates to be high when inflation is high and low when inflation is low |
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| Diminishing Returns to Labor |
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Definition
| This principle states that if the amount of capital and other inputs are held constant, then the greater the quantity of labor already employed, the less each additional worker adds to production. |
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| The short-term unemployment associated with the process of matching workers with jobs |
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| Long-term and chronic unemployment that exists even with the economy producing at a normal rate |
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| The extra unemployment that occurs during periods of recession |
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| Government policies that affect the long-term growth rate by a small amount will have a major economic impact. *** |
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| The talents, education, training, and skills of workers. Workers with large stock of _____ are more productive than workers with less training. |
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| Worker productivity depends not only on their skills (human capital) but on the tools (physical capital) they have to work with. |
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| Diminishing Returns to Capital |
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Definition
| If the amount of labor and other inputs employed is held constant, then the greater the amount of capital already in use, the less an additional unit of capital adds to production. |
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