The weighted average of prices of a specific set of goods and services purchased by a typical household; a widely cited index number for the price level.
The year chosen as a point of reference or basis of comparison for prices in other years; a benchmark year.
An increase in Price level.
Nominal income adjusted for price changes.
The current dollar amount of a persons income.
The percentage of the civilian force that is unemployed:
Unemployment rate = Number of Unemployed persons/Civilian Labor Force.
The percentage of the civilian noninstitutional population that is employed:
Employment Rate= Number of Employed persons/ Civilian non-institutional population.
Labor Force Participation Rate
The percentage of the civilian non institutional population that is in the civilian labor force:
Labor Force participation rate= Civilian labor force/Civilian non-institutional population.
4 reasons for unemployment
Job Loser- Fired or Laid Off
Job Leaver- Quit his job
Reentrant- This person was previously employed, hasn't worked for some time and is currently reentering the labor force.
New Entrant- This person has never had a full-time job for two weeks or longer.
Unemployment that is due to the natural restrictions in the economy and that is caused by changing marketing conditions and represented by qualified individuals with transferable skills who change jobs.
Unemployment due to structural changes in the economy that eliminate some jobs and create others for which the unemployed are unqualified.
Unemployment cause by frictional and structural factors in the economy:
The condition that exists when the unemployment rate is equal to the natural unemployment rate.
Cyclical Unemployment rate
The difference between the unemployment rate and the natural unemployment rate.
Unemployment rate - Natural unemployment rate
Gross Domestic Product
The total market value of all final goods and services produced annually within a countries borders.
A good in the hand of its final user
A good that is an input production of a final good.
Counting a good more than once when computing GDP.
A payment to a person that is not made in return for goods and services currently supplied. (Social Security, Veterans Benefits)
6 factors Not calculated in GDP?
Certain non market goods and services- work around the home where no transaction takes place.
Underground Activities-Legal and Illegal- Gambling, Drug sales and under the table transactions.
Sales of used goods
Financial Transactions- Trading of stocks and Bonds
Government Transfer Payments- Social Security and Veterans Benefits.
Leisure- Vacation time is too hard to quantify.
Consumption (C) includes spending on:
Durable Goods- Goods that are expected to last for more than 3 years such has refrigerators, ovens, or cars.
Nondurable Goods- Goods that are not expected to last more than 3 years, such as food.
Services- Intangible items such as lawn care, car repair and entertainment.
Investment (I) is the sum of what three things?
Purchases of newly produced capital goods
Changes in business inventories, sometimes referred to as inventory investment
Purchases of new residential housing.
Changes in the stock of unsold goods.
Business purchases of capital goods, such as machinery and factories, and purchases of new residential housing,
Federal, State, and local government purchases of goods and services and gross investment in highways, bridges and so on.
Government Transfer Payment
Payments to persons that are not made in return for currently supplied goods and services.
Total domestic spending on foreign goods
Total foreign spending on domestic goods.
Exports - Imports
National Income is the Sum of 5 components
Compensation of employees
rental income of persons
Capital Consumption Allowance (Depreciation)
The estimated amount of capitol goods used up in production through natural wear, and accidental destruction.
Net Domestic Product (NDP)
GDP minus the Capital Consumption Allowance
The amount of income that individuals actually receive. It is equal to national income minus undistributed corporate profits, social insurance taxes, and corporate profits taxes, plus transfer payments.
The portion of personal income that can be used for consumption or saving; equal to personal income minus personal taxes (especially income taxes).
The value of the entire output produced annually within a country's borders, adjusted for price changes.
Increase in Real GDP
Recurrent swings (up and down) in Real GDP.
The quantity demanded of all goods and services (Real GDP) at different price levels, ceteris paribus.
Aggregate Demand (AD) Curve
A curve that shows the quantity demanded of all goods and services (Real GDP) at different price levels, ceteris paribus.
Real Balance Effect
The change in the purchasing power of dollar-denominated assets that results from a change in the price level.
The value of a person's monetary assets. Wealth , as distinguished from monetary wealth refers to the value of all assets owned, both monetary and non-monetary.
non-monetary= car, houses.
The quantity of Goods and services that can be purchased with a unit of money. Purchasing power and the price level are inversely related: As the price level goes up purchasing power goes down.
Purchasing Power ⇧ Price Level⇩ (inversely related)
Interest Rate Effect
The changes in household and business buying as the interest rate changes
(in turn, a reflection of a change in the demand for or supply of credit brought on by price level changes)
International Trade Effect
The change in foreign sector spending as the price level changes.
The value of all assets, monetary and nonmonetary.
An increase in the value of one currency relative to other currencies.
A decrease in the value of one currency relative to other currencies.
The average number of times a dollar is spent to buy final goods and services in a year.
The quantity supplied of all goods and services (Real GDP) at different price levels, ceteris paribus.
Short-Run Aggregate Supply (SRAS) Curve
A curve that shows the quantity supplied of all goods and services (Real GDP) at different price levels, ceteris paribus.
The condition in the economy when the quantity demanded of real GDP equals the (short-run) quantity supplied of Real GDP. This condition is met where the aggregate demand curve intersects the short-run aggregate supply curve.
Natural Real GDP
The Real GDP that is produced at the natural unemployment rate. The Real GDP that is produced when the economy is in long-run equilibrium.
Long-Run Aggregate Supply (LRAS) Curve.
The LRAS curve is a vertical line at the level of Natural GDP. It represents the output the economy produces when wages and prices have adjusted to their final equilibrium levels and when workers do not have any relevant misperceptions.
A government mandated maximum price above which legal trades cannot be made.
Price Ceiling= Shortages
Tie in Sale
A sale whereby one good can be purchased only if another good is purchased.
A government-mandated minimum price below which legal trades cannot be made.
Price Floor= Surpluses
The loss to society of not producing the competitive, or supply-and-demand-determined, level of output.