Complete List of Terms and Definitions for ch 12 and 13
| Terms | Definitions |
|---|---|
| demand pull | Demand for goods and services exceed supply. Heavy demand for goods and services will force prices up |
| unemployment (seasonal) |
Occurs as a result of harvest schedules, vacations, or when industries slow or shut down for a season ii. Examples: landscapers, construction iii. Government does not try to get rid of this because it is normal and a healthy part of the economy |
| inflation | general increase in price |
| What group has most of its members in poverty? | Female-headed households |
| peak | moment when real gdp stops growing |
| Creeping | Inflation remains low for a longtime, 1-3% does not cause economic problems |
|
external shocks |
-unexpected events that cause decrease or increase in aggregate supply - negative: war, oil embargo, natural disaster -positive: discovery of large mineral deposit, perfect growing season |
| underground economy (under the table wages) | some companies avoid paying business and income taxes |
| labor force | all those looking for a job or currently has one |
| stagflation | decline in real gdp (output) with rise in price level (inflation) |
| the total equals gdp | economists add together the amounts spent on all four categories to arrive at the total expedenture on goods and services produced during the year |
| Hyperflation | Inflation is out of control, inflation rates could go as high as 100-500% per month and money looses most of its value |
| consumer price index (cpi) |
determined by market basket By looking at CPI consumers, businesses and the government can compare the cost of a group of goods this month with what the same or similar group cost months or even years ago. CPI is used to calculate inflation rate |
| calculating real gdp | real gdp/ total population |
| gross domestic product |
1. dollar value of all final goods and services produced within a countrys border in a given year 2. includes all companies in America no matter what country it originated from 3. any product produced or sold in America |
| expansion | economic growth: rise in real gdp, decline in unemployment |
| phases of the business cycle |
1. expansion 2. peak 3. contraction 4. trough |
| calculating gdp | c+i+g+(n-x) |
| real gdp per capita |
- determines how productive a country is look at population growth, gdp might increase because of an increase in population instead of more productive economy - real gdp must keep up with the growth rate of the population if it is to satisfy the needs of the growing population - shows quality of life |
| depression | an especially long and severe recession low factory output, high unemployment |
| business cycle | period of expansion followed by a period of contraction marked by changes in real gdp |
| underground economy |
unintended economic side effects have a monetary value that often is not reflected in GDP example steps a company takes to produce less pollution pleasant surroundings, ample leisure time, personal safety. Gdp measures output and income within an economy not individuals quality of life |
| i- investment spending |
non-residential fixed= creation of tools and equipment to use in the production of other goods and services: buliding a factory residential= new homes and apartments invenrtory changes= level of amount of goods necessary for production and finished goods ready to be sold. increase stock in store |
| Chronic | Inflation that rises steadily from month to month over long period of time |
| Underemployment | working a job that one is over-qualified for, or working part time when they desire full time work |
| underground economy (black market) |
illegal drugs, weapns, stolen goods, cars |
| interest rate | percentage rate of change in price level over time |
| Unemployment (frictional) |
someone looking for a new job - examples laid off, leaving a company,graduating student - unemployment insurance may contribute slightly to this type of unemployment : a worker receiving unemployment insurance faces less financial pressure to find a new job immediately |
| Calculating Inflation: | [(CPI year A – CPI year B) / CPI year B] X 100 |
| real gdp |
expressed in constant prices using one years price as a base price - used to compare different years of gdp |
| seasonal 5 major causes |
develpoment of new technology discovery of new resources changes in consumer demand globalization lack of education |
| unemployment (structural ) |
i. Worker’s skills do not match the jobs that are available ii. When structure of economy changes, the skills that workers mush have in order to succeed in the economy also must change iii. Examples: factories where machines take over |
| Poverty line for family of 4: | In 2004 = $18,850 |
| expedenture approach |
1. business goods and services 2. government goods and services 3. net exports or imports of goods and services |
| quanity | i. Too much money in the economy causes inflation and therefore the money supply should be carefully monitored |
| c= consumer spending | durable goods, nondurable goods, and services |
| nx= net exports | (exports- imports) |
| market basket | representative standard collection of goods and services |
| unemployment (cynical ) |
Rises during economic downturns and falls when the economy improves Rises during contraction Falls during expansion Government tries to minimize this; worst case was during the Great Depression which brought about unemployment insurance |
| nonmarket |
-gdp does not measure goods and services that people do for themselves, gdp rises when peple pay someone else to do these things for them. Such as: lawn care, childcare, cooking dinner when nonmarket activities are shifted to the market gdp is pushed up somewhat even though production has not really increased |
| causes of inflation |
quanity demand pull cost push |
| contraction | economic decline: falling real gdp |
| trough | moment when the economy has "bottomed out" lowest point in an economic contraction. real gdp stops falling |
| types of inflation |
creeping chronic hyperflation |
| price index |
Measurement that shows how the average price of a standard group of goods changes over time. Price index produces an average that economists can compare to earlier averages to see how much prices have changed over time Groups & Individuals: use this to adjust saving habits Government; uses price indexs to make economic decisions |
| cost push | Producers raise prices in order to meet increased cost higher prices for raw materials will cause costs to increase. Wage increases are typically the largest increase in production costs. |
| unemployment rate | (# of unemployed/# people in labor force)x100 |
| How does the U.S census Bureau define a family? |
A family = a group of two or more people related by birth, marriage, or adoption who live in the same housing unit. A household is all the people who live in the same housing unit, regardless of how they are related |
| purchasing power |
ability to purchase goods and services i. As prices rise, purchasing power decreases |
| full employment |
4-6% unemployment shows healthy economy from employment stand point Full employment = nearly everyone wants a job, has a job Underemployment = working a job that one is over-qualified for, or working part time when they desire full time work |
| business investment |
-businesses expand by producing more or investing in their company= economic growth - businesses decrease production= economic contracts |
| recession |
6 to 8 months -negative real economic growth for two or more successive quarters -marked by rising unemployment (6-10%) |
| 6 effects of inflation |
Purchasing power decrease Income is eroded if wages are not increased to counteract inflation People receiving interest on money in savings accounts must take inflation rates into consideration. If someone is making 8% interest on a savings account and the inflation rate is 3% that person’s savings increased that year by 5% not 8% |
| nominal gdp | measured in current prices and increases in price appears to make GDP rise, but output is has not risen |
| saving and investing |
saving in a bank or mutual funds allow businesses to grow their companies |
| interest rates and credit |
- low interest rates encorage people to spend more money and expand the economy -rising rates reducre output and make unemployment rise -raise and fall of borrowing rate has a great impact on spending and real gdp |
| gross national product |
1. the annual income earned by u.s. owned firms and u.s. citizens 2. market value of all goods and services produced by americans in one year 3. all american companies no matter their location |
| expenditure approach |
consumer goods and services - includes durable and nondurable goods |
| consumer expectations |
- fear of weakening economy cause consumers to hold on tightly to their money and possibly cause the contraction that they feared - opposite can also occur: people expect and expanding econom and therefore spend more |
| underground economy (informal transactions) | swapping you bike for a stereo with a friend, babysitting, mowing lawns |
| g- government spending |
anything that the government spends money on -Does not include: Social security, unemployment compensation, welfare , transfer of payments |
| limitations of gdp |
1. nonmarket activity 2. underground economy 3.negative externalities 4. quality of life |
| calcualting cpi | (updated cost / base period cost) X 100 |
| measuring unemployment |
The amount of unemployment in the nation is an important clue to the health of the economy Each month the census bureau surveys families from this poll the Bureau computes the unemployment rate = the percentage of the nation’s labor force that is unemployed |
