| chapter_1-8_vocabulary.doc |
Vocabulary definitions
Chapter 1
Economics: The study of how individuals and societies choose to use the scare resources that nature and previous generations have provided.
Opportunity cost: The best alternative that we forgo, or give up, when we make a choice or a decision.
Scare: limited.
Marginalism: The process of analyzing the additional or incremental costs or benefits arising from a choice or decision.
Sunk costs: Costs that cannot be avoided because they have already been incurred.
Efficient market: market in which profit opportunities are eliminated almost instantaneously.
Industrial Revolution: The period in England during the late eighteenth and early nineteenth centuries in which new manufacturing technologies and improved transportation gave rise to the modern factory system and a massive movement of the population from the countryside to the cities.
Microeconomics: The branch of economics that examines the functioning of individual industries and the behaviour of individual decision-making units-that is, firms and households.
Macroeconomics: The branch of economics that examines the economic behaviour of aggregates- income, employment, output and so on-on a national scale.
Positive economics: An approach to economics that seeks to understand behaviour and the operation of systems without making judgments. It describes what exists and how it works.
Normative economics: An approach to economics that analyzes outcomes of economic behaviour, evaluates them as good or bad, and may prescribe courses of action. Also called policy economics.
Descriptive economics: The compilation of data that describe phenomena and facts.
Economic theory: A statement or set of related statements about cause and effect, action and reaction.
Model: A formal statement of a theory, usually a mathematical statement of a presumed relationship between two or more variables.
Variable: A measure that can change from time to time or from observation to observation.
Ockham's razor: The principle that irrelevant detail should be cut away.
Ceteris paribus, or all else equal: A device used to analyze the relationship between two variables while the values of other variables are held unchanged.
Post hoc, ergo propter hoc: Literally, "after this (in time), therefore because of this." A common error made in thinking about causation: If Event A happens before Event B, it is not necessarily true that A caused B.
Fallacy of composition: The erroneous belief that what is true for a part is necessarily true for the whole.
Empirical economics: The collection and use of data to test economic theories.
Efficiency: In economics, allocate efficiency. An efficient economy is one that produces what people want at the least possible cost.
Equity: Fairness.
Economic growth: An increase in the total output of an economy.
Stability: A condition in which national output is growing steadily, with low inflation and full employment of resources.
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Chapter 2
Capital: Things that are produced and then used in the production of other goods and services.
Factors of production (or factors): The inputs into the process of production. Another term for resources.
Production: The process that transforms scarce resources into useful goods and services.
Inputs or Resources: Anything provided by nature or previous generations that can be used directly or indirectly to satisfy human wants.
Outputs: Goods and services of value to households.
Opportunity cost: The best alternative that we forgo, or give up, when we make a choice or a decision.
Theory of comparative advantage: Ricardo's theory that specialization and free trade will benefit all trading parties, even those that may be "absolutely" more efficient producers.
Absolute advantage: A producer has an absolute advantage over another in the production of a good or service of he or she can produce that product using fewer resources.
Comparative advantage: A producer has a comparative advantage over another in the production of a good or service if he or she can produce that product at a lower opportunity cost.
Consumer goods: Goods produced for present consumption.
Investment: The process of using resources to produce new capital.
Production possibility frontier (ppf): A graph that shows all the combinations of goods and services that can be produced if all of society's resources are used efficiently
Marginal rate of transformation: The slope of the production possibility frontier (ppf).
Economic growth: An increase in the total output of an economy. It occurs when a society acquires new resources or when it learns to produce more using existing resources.
Command economy: An economy in which a central government either directly or indirectly sets output targets, income, and prices.
Laissez-faire economy: Literally from the French: "all [them] to do." An economy in which individual people and firms pursue their own self-interest without any central direction or regulation.
Market: The institution through which buyers and sellers interact and engage in exchange.
Consumer sovereignty: The idea that consumers ultimately dictate what will be produced (or not produced) by choosing what to purchase (and what not to purchase).
Free enterprise: The freedom of individuals to start and operate private businesses in search of profits.
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Chapter 3
Firm: an organization that transforms resources (inputs) into products (outputs). Firms are the primary producing units in a market economy
Entrepreneur: a person who organizes, manages, and assumes the risked of a firm, taking a new idea or a new product and turning it into a successful business
Households: the consuming units in an economy.
Product or output markets: the markets in which goods and services are exchanged.
Input or factor markets: the markets in which the resources used to produce goods and services are exchanged.
Labor market: the input/factor market in which households supply work for wages to firms that demand labor.
Capital market: the input/factor market in which households supply their savings, for interest or for claims to future profits, to firms that demand funds to buy capital goods.
Land market: the input/factor market in which households supply land or other real property in exchange for rent
Factors of production (or factors): The inputs into the process of production. Land, labor, and capital are the three key factors of production.
Quantity demanded: the amount (number of units) of a product that a household would buy in a given period of it could buy all it wanted at the current market price.
Demand schedule: a table showing how much of a given product a household would be willing to buy at different prices.
Demand curve: a graph illustrating how much of a given product a household would be willing to buy at different prices.
Law of demand: the negative relationship between price and quantity demanded: As price rises, quantity demanded decrease; as price falls, quantity demanded increase.
Income: the sum of all a household's wages, salaries, profits, interest payments rents, and other forms of earnings in a given period of time. It is a flow measure.
Wealth or net worth: the total value of what a household owns minus what it owes. It is a stock measure.
Normal goods: goods for which demand goes up when income in higher and for which demand goes down when income is lower.
Inferior goods: goods for which demand tends to fall when income rises.
Substitutes: goods that can serve as replacements for one another; when the price of one increases, demand for the other increases.
Perfect substitutes: identical products.
Complements, complementary goods: goods that "go together"; a decrease in the price of one results in an increase in demand for the other and vice versa.
Shift of a demand curve: the change that takes place in a demand curve corresponding a new relationship between quantity demanded of a good and price of that good. The shift is brought about by a change in the original conditions.
Movement along a demand curve: the change in quantity demanded brought about by a change in price.
Market demand: the sum of all the quantities of a good or service demanded per period by all the households buying in the market for that good and service.
Profit: the difference between revenues and costs.
Quantity supplied: the amount of a particular product that a firm would be willing and able to offer for sale at a particular price during a given time period.
Supply schedule: a table showing how much of a product firms will set at alternative prices.
Law of supply: the positive relationship between price and quantity of a good supplied: An increase in market price will lead to an increase in quantity supplied, and a decrease in market price will lead to a decrease in quantity supplied.
Supply curve: A graph illustrating how much of a product a firm will sell at different prices.
Movement along a supply curve: the change in quantity supplied brought about by a change in price.
Shift of a supply curve: the change that takes place in a supply curve corresponding a new relationship between quantity supplied of a good and price of that good. The shift is brought about by a change in the original conditions.
Market supply: the sum of all that is supplied each period by all producers of a single product.
Equilibrium: the condition that exists when quantity supplied and quantity demanded are equal. At equilibrium, there is no tendency for price to change.
Excess demand or shortage: the condition that exists when quantity demanded exceeds quantity supplied at the current price.
Excess supply or surplus: the condition that exits when quantity supplied exceeds quantity demanded at the current price.
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Chapter 4
Price rationing: the process by which the market system allocates goods and services to consumers when quantity demanded exceeds quantity supplied.
Price ceiling: a maximum price that sellers may change for a good usually set by government.
Queuing: waiting in line as a means of distributing goods and services: a nonprime rationing mechanism.
Favored customers: those who receive special treatment from dealers during situations of excess demand.
Ration coupons: tickets or coupons that entitle individuals to purchase a certain amount of a given product per month.
Black market: a market in which illegal trading takes place at market-determined prices.
Price floor: a minimum price below which exchange is not permitted.
Minimum wage: a price floor set for the price of labor.
Consumer surplus: the difference between the maximum amounts a person is willing to pay for a good and its current market price.
Producer surplus: the difference between the current market price and the full cost of production for the firm.
Deadweight loss: the total loss of producer and consumer surplus from underproduction or overproduction.
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Chapter 5
Microeconomics: examines the functioning of individual industries and the behavior of individual decision-making units-firms and households.
Macroeconomics: deals with the economy as a whole. Macroeconomics focuses on the determinants of total national income, deals with aggregates such as aggregate consumption and investment, and looks at the overall level of prices instead of individual prices.
Aggregate behavior: the behavior of all households and firms together.
Sticky price: Prices that do not always adjust rapidly to maintain equality between quantity supplied and quantity demanded.
Business cycle: the cycle of short-term ups and downs in the economy.
Aggregate output: the total quantity of goods and services produced in an economy in a given period.
Recession: a period during which aggregate output declines. Conventionally, a period in which aggregate output declines for two consecutive quarters.
Depression: a prolonged and deep recession.
Expansion or boom: the period in the business cycle from a trough up to a peak during which output and employment grow.
Contraction, recession, or slump: the period in the business cycle from a peak down to a tough during which output and employment fall.
Unemployment rate: the percentage of the labor force that is unemployed.
Inflation: an increase in the overall price level.
Hyperinflation: a period of very rapid increase in the overall price level.
Deflation: a decrease in the overall price level.
Circular flow: a diagram showing the income received and payments made by each sector of the economy.
Transfer payment: cash payment made by the government to people who do not supply goods, services, or labor in exchanges for these payments. They include Social Security benefits, veterans' benefits, and welfare payments.
Treasury bonds, notes, and bills: promissory notes issued by the federal government when it borrows money.
Corporate bonds: promissory notes issued by firms when they borrow money.
Shares of stock: financial instruments that give to the holder a share in the firm's ownership and therefore the right to share in the firm's profits.
Dividends: the portion of firm's profits that the firm pays out each period to its shareholders.
Fiscal policy: Government policies concerning taxes and spending.
Monetary policy: the tools used by the Federal Reserve to control the quantity of money, which in turn affects interest rates.
Great Depression: the period of severe economic contraction and high unemployment that began in 1929 and continued throughout the 1930s.
Fine-tuning: the phrase used by Walter Heller to refer the government's role in regulating inflation and unemployment.
Stagflation: a situation of both high inflation and high unemployment.
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Chapter 6
National income and product accounts: data collected and published by the government describing the various components of national income and output in the economy.
Gross domestic product (GDP): the total market value of all final goods and services produced within a given period by factors of production located within a country.
Final goods and services: goods and services produced for final use.
Intermediate goods: goods that are produced by one firm for use in further processing by another firm.
Value added: the difference between the value of goods as they leave a stage of production and the cost of the goods as they entered that stage.
Gross national product (GNP): the total market value of all final goods and services produced within a given period by factors of production owned by a country's citizens, regardless of where the output is produced.
Expenditure approach: a method of computing GDP that measures the total amount spent on all final goods and services during a given period.
Income approach: a method of computing GDP that measures the income-wages, rents, interest, and profits- received by all factors of production in producing final goods and services.
Personal consumption expenditure (C): expenditure by consumers on goods and services.
Durable goods: goods that last a relatively long time, such as cars and household appliances.
Nondurable goods: goods that are used up fairly quickly, such as food and clothing.
Services: the things we buy that do not involve the production of physical things, such as legal and medical services and education.
Gross private domestic investment (I): total investment in capital-that is, the purchase of new housing, plants, equipment, and inventory by the private (or nongovernment) sector.
Nonresidential investment: expenditure by firms for machines, tools, plants, and so on.
Residential investment: expenditure by households and firms on new houses and apartment building.
Change in business inventories: the amount by which firms' inventories change during a period. Inventories are the goods that firms produce now but intend to sell later.
Depreciation: the amount by which an asset's value falls in a given period.
Gross investment: the total value of all newly produced capital goods (plant, equipment, housing, and inventory) produced in a given period.
Net investment: Gross investment minus depreciation.
Government consumption and gross investment (G): expenditures by federal, state, and local governments for final goods and services.
Net exports (EX-IM): the difference between exports (sales to foreigners of U.S. - produced goods and services) and imports (U.S. purchases of goods and services from abroad). The figure can be positive or negative.
National income: the total income earned by the factors of production owned by a country's citizens.
Compensation of employees: includes wages, salaries, and various supplements-employer contributions to social insurance and pension funds, for example- paid to households by firms and by the government.
Proprietors' income: the income of unincorporated businesses.
Rental income: the income received by property owners in the form of rent
Corporate profits: the income of corporations.
Net interest: the interest paid by business.
Indirect taxes minus subsidies: taxes such as sales taxes, customs duties, and license fees less subsidies that the government pays for which it receives no goods or services in return.
Net business transfer payments: net transfer payments by businesses to others.
Surplus of government enterprises: income of government enterprises.
Net national product (NNP): gross national product minus depreciation; a nation's total product minus what is required to maintain the value of its capital stock.
Statistical discrepancy: data measurement error.
Personal income: the total income of households.
Disposable personal income or after-tax income: personal income minus personal income taxes. The amount that households have to spend or save.
Personal saving: the amount of disposable income that is left after total personal spending in a given period.
Personal saving rate: the percentage of disposable personal income that is saved. If the personal saving rate is low, households are spending a large amount relative to their incomes; if it is high, households are spending cautiously.
Current dollars: the current prices they we pay for goods and services.
Nominal GDP: gross domestic measured in current dollars.
Weight: the importance attached to an item within a group of items.
Base year: the year chosen for the weights in a fixed-weight procedure.
Fix-weight procedure: a procedure that uses weights from a given base year.
Underground economy: the part of the economy in which transactions take place and in which income is generated that is unreported and therefore not counted in GDP.
Gross national income (GNI): GNP converted into dollars using an average of currency exchange rates over several years adjusted for rates of inflation.
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Chapter 7
Employed: Any person 16 years old or older (1) who works for pay, either for someone else or in his or her own business for 1 or more hours per week, (2) who works without pay for 15 or more hours per week in a family enterprise, or (3) who has a job but has been temporarily absent with or without pay
Unemployed: A person 16 years old or older who is not working, is available for work, and has made specific efforts to find work during the previous 4 weeks.
Not in the labor force: a person who is not looking for work because he or she does not want a job or has given up looking
Labor force: the number of people employed plus the number of unemployed.
Unemployment rate: the ratio of the number of people unemployed to the total number of people in the labor force.
Labor force participation rate: the ratio of the labor force to the total population 16 years old or older.
Discouraged-worker effect: the decline in the measured unemployment rate that results when people who want to work but cannot find jobs grow discouraged and stop looking, thus dropping out of the ranks of the unemployed and the labor force.
Frictional unemployment: the portion of unemployment that is due to the normal working of the labor market; used to denote short-run job/skill matching problems.
Structural unemployment: the portion of unemployment that is due to changes in the structure of the economy they result in a significant loss of jobs in certain industries.
Natural rate of unemployment: the unemployment that occurs as a normal part of the functioning of the economy. Sometimes taken as the sum of frictional unemployment and structural unemployment.
Cyclical unemployment: The increase in unemployment that occurs during recessions and depressions.
Consumer price index (CPI): A price index computed each month by the Bureau of Labor Statistics using a bundle that is meant to represent the "market basket" purchased monthly by the typical urban consumer.
Producer price indexes (PPIs) Measures of prices that producers receive for products at all stages in the production process.
Real interest rate: the difference between the interest rate on a loan and the inflation rate.
Output growth: the growth rate of the output of the entire economy.
Per-capita output growth: the growth rate of output per person in the economy.
Productivity growth: the growth rate of output per worker.
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Chapter 8
Aggregate output: the total quantity of goods and services produced (or supplied) in an economy in a given period.
Aggregate income: the total income received by all factors of production in a given period.
Aggregate output (income) (Y): a combined term used to remind you of the exact equality between aggregate output and aggregate income.
Consumption function: the relationship between consumption and income.
Marginal propensity to consume (MPC): that fraction of a change in income that is consumed, or spent.
Aggregate saving (S): the part of aggregate income that is not consumed.
Identity: something that is always true.
Marginal propensity to save (MPS): that fraction of a change in income that is saved.
Planned investment (I): those additions to capital stock and inventory that are planned by firms.
Actual investment: that actual amount of investment that takes place; it includes items such as unplanned changes in inventories.
Equilibrium: occurs when there is no tendency for change. In the macroeconomic goods market, equilibrium occurs when planned aggregate expenditure is equal to aggregate output.
Planned aggregate expenditure (AE): the total amount the economy plans to spend in a given period. Equal to consumption plus planned investment: AE=C+I.
Multiplier: the ratio of change in the equilibrium level of output to a change in come exogenous variable.
Exogenous variable: a variable that is assumed not to depend on the state of the economy- that is, it doesn’t change when the economy changes.
Economics: The study of how individuals and societies choose to use the scare resources that nature and previous generations have provided.
Opportunity cost: The best alternative that we forgo, or give up, when we make a choice or a decision.
Scare: limited.
Marginalism: The process of analyzing the additional or incremental costs or benefits arising from a choice or decision.
Sunk costs: Costs that cannot be avoided because they have already been incurred.
Efficient market: market in which profit opportunities are eliminated almost instantaneously.
Industrial Revolution: The period in England during the late eighteenth and early nineteenth centuries in which new manufacturing technologies and improved transportation gave rise to the modern factory system and a massive movement of the population from the countryside to the cities.
Microeconomics: The branch of economics that examines the functioning of individual industries and the behaviour of individual decision-making units-that is, firms and households.
Macroeconomics: The branch of economics that examines the economic behaviour of aggregates- income, employment, output and so on-on a national scale.
Positive economics: An approach to economics that seeks to understand behaviour and the operation of systems without making judgments. It describes what exists and how it works.
Normative economics: An approach to economics that analyzes outcomes of economic behaviour, evaluates them as good or bad, and may prescribe courses of action. Also called policy economics.
Descriptive economics: The compilation of data that describe phenomena and facts.
Economic theory: A statement or set of related statements about cause and effect, action and reaction.
Model: A formal statement of a theory, usually a mathematical statement of a presumed relationship between two or more variables.
Variable: A measure that can change from time to time or from observation to observation.
Ockham's razor: The principle that irrelevant detail should be cut away.
Ceteris paribus, or all else equal: A device used to analyze the relationship between two variables while the values of other variables are held unchanged.
Post hoc, ergo propter hoc: Literally, "after this (in time), therefore because of this." A common error made in thinking about causation: If Event A happens before Event B, it is not necessarily true that A caused B.
Fallacy of composition: The erroneous belief that what is true for a part is necessarily true for the whole.
Empirical economics: The collection and use of data to test economic theories.
Efficiency: In economics, allocate efficiency. An efficient economy is one that produces what people want at the least possible cost.
Equity: Fairness.
Economic growth: An increase in the total output of an economy.
Stability: A condition in which national output is growing steadily, with low inflation and full employment of resources.
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Chapter 2
Capital: Things that are produced and then used in the production of other goods and services.
Factors of production (or factors): The inputs into the process of production. Another term for resources.
Production: The process that transforms scarce resources into useful goods and services.
Inputs or Resources: Anything provided by nature or previous generations that can be used directly or indirectly to satisfy human wants.
Outputs: Goods and services of value to households.
Opportunity cost: The best alternative that we forgo, or give up, when we make a choice or a decision.
Theory of comparative advantage: Ricardo's theory that specialization and free trade will benefit all trading parties, even those that may be "absolutely" more efficient producers.
Absolute advantage: A producer has an absolute advantage over another in the production of a good or service of he or she can produce that product using fewer resources.
Comparative advantage: A producer has a comparative advantage over another in the production of a good or service if he or she can produce that product at a lower opportunity cost.
Consumer goods: Goods produced for present consumption.
Investment: The process of using resources to produce new capital.
Production possibility frontier (ppf): A graph that shows all the combinations of goods and services that can be produced if all of society's resources are used efficiently
Marginal rate of transformation: The slope of the production possibility frontier (ppf).
Economic growth: An increase in the total output of an economy. It occurs when a society acquires new resources or when it learns to produce more using existing resources.
Command economy: An economy in which a central government either directly or indirectly sets output targets, income, and prices.
Laissez-faire economy: Literally from the French: "all [them] to do." An economy in which individual people and firms pursue their own self-interest without any central direction or regulation.
Market: The institution through which buyers and sellers interact and engage in exchange.
Consumer sovereignty: The idea that consumers ultimately dictate what will be produced (or not produced) by choosing what to purchase (and what not to purchase).
Free enterprise: The freedom of individuals to start and operate private businesses in search of profits.
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Chapter 3
Firm: an organization that transforms resources (inputs) into products (outputs). Firms are the primary producing units in a market economy
Entrepreneur: a person who organizes, manages, and assumes the risked of a firm, taking a new idea or a new product and turning it into a successful business
Households: the consuming units in an economy.
Product or output markets: the markets in which goods and services are exchanged.
Input or factor markets: the markets in which the resources used to produce goods and services are exchanged.
Labor market: the input/factor market in which households supply work for wages to firms that demand labor.
Capital market: the input/factor market in which households supply their savings, for interest or for claims to future profits, to firms that demand funds to buy capital goods.
Land market: the input/factor market in which households supply land or other real property in exchange for rent
Factors of production (or factors): The inputs into the process of production. Land, labor, and capital are the three key factors of production.
Quantity demanded: the amount (number of units) of a product that a household would buy in a given period of it could buy all it wanted at the current market price.
Demand schedule: a table showing how much of a given product a household would be willing to buy at different prices.
Demand curve: a graph illustrating how much of a given product a household would be willing to buy at different prices.
Law of demand: the negative relationship between price and quantity demanded: As price rises, quantity demanded decrease; as price falls, quantity demanded increase.
Income: the sum of all a household's wages, salaries, profits, interest payments rents, and other forms of earnings in a given period of time. It is a flow measure.
Wealth or net worth: the total value of what a household owns minus what it owes. It is a stock measure.
Normal goods: goods for which demand goes up when income in higher and for which demand goes down when income is lower.
Inferior goods: goods for which demand tends to fall when income rises.
Substitutes: goods that can serve as replacements for one another; when the price of one increases, demand for the other increases.
Perfect substitutes: identical products.
Complements, complementary goods: goods that "go together"; a decrease in the price of one results in an increase in demand for the other and vice versa.
Shift of a demand curve: the change that takes place in a demand curve corresponding a new relationship between quantity demanded of a good and price of that good. The shift is brought about by a change in the original conditions.
Movement along a demand curve: the change in quantity demanded brought about by a change in price.
Market demand: the sum of all the quantities of a good or service demanded per period by all the households buying in the market for that good and service.
Profit: the difference between revenues and costs.
Quantity supplied: the amount of a particular product that a firm would be willing and able to offer for sale at a particular price during a given time period.
Supply schedule: a table showing how much of a product firms will set at alternative prices.
Law of supply: the positive relationship between price and quantity of a good supplied: An increase in market price will lead to an increase in quantity supplied, and a decrease in market price will lead to a decrease in quantity supplied.
Supply curve: A graph illustrating how much of a product a firm will sell at different prices.
Movement along a supply curve: the change in quantity supplied brought about by a change in price.
Shift of a supply curve: the change that takes place in a supply curve corresponding a new relationship between quantity supplied of a good and price of that good. The shift is brought about by a change in the original conditions.
Market supply: the sum of all that is supplied each period by all producers of a single product.
Equilibrium: the condition that exists when quantity supplied and quantity demanded are equal. At equilibrium, there is no tendency for price to change.
Excess demand or shortage: the condition that exists when quantity demanded exceeds quantity supplied at the current price.
Excess supply or surplus: the condition that exits when quantity supplied exceeds quantity demanded at the current price.
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Chapter 4
Price rationing: the process by which the market system allocates goods and services to consumers when quantity demanded exceeds quantity supplied.
Price ceiling: a maximum price that sellers may change for a good usually set by government.
Queuing: waiting in line as a means of distributing goods and services: a nonprime rationing mechanism.
Favored customers: those who receive special treatment from dealers during situations of excess demand.
Ration coupons: tickets or coupons that entitle individuals to purchase a certain amount of a given product per month.
Black market: a market in which illegal trading takes place at market-determined prices.
Price floor: a minimum price below which exchange is not permitted.
Minimum wage: a price floor set for the price of labor.
Consumer surplus: the difference between the maximum amounts a person is willing to pay for a good and its current market price.
Producer surplus: the difference between the current market price and the full cost of production for the firm.
Deadweight loss: the total loss of producer and consumer surplus from underproduction or overproduction.
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Chapter 5
Microeconomics: examines the functioning of individual industries and the behavior of individual decision-making units-firms and households.
Macroeconomics: deals with the economy as a whole. Macroeconomics focuses on the determinants of total national income, deals with aggregates such as aggregate consumption and investment, and looks at the overall level of prices instead of individual prices.
Aggregate behavior: the behavior of all households and firms together.
Sticky price: Prices that do not always adjust rapidly to maintain equality between quantity supplied and quantity demanded.
Business cycle: the cycle of short-term ups and downs in the economy.
Aggregate output: the total quantity of goods and services produced in an economy in a given period.
Recession: a period during which aggregate output declines. Conventionally, a period in which aggregate output declines for two consecutive quarters.
Depression: a prolonged and deep recession.
Expansion or boom: the period in the business cycle from a trough up to a peak during which output and employment grow.
Contraction, recession, or slump: the period in the business cycle from a peak down to a tough during which output and employment fall.
Unemployment rate: the percentage of the labor force that is unemployed.
Inflation: an increase in the overall price level.
Hyperinflation: a period of very rapid increase in the overall price level.
Deflation: a decrease in the overall price level.
Circular flow: a diagram showing the income received and payments made by each sector of the economy.
Transfer payment: cash payment made by the government to people who do not supply goods, services, or labor in exchanges for these payments. They include Social Security benefits, veterans' benefits, and welfare payments.
Treasury bonds, notes, and bills: promissory notes issued by the federal government when it borrows money.
Corporate bonds: promissory notes issued by firms when they borrow money.
Shares of stock: financial instruments that give to the holder a share in the firm's ownership and therefore the right to share in the firm's profits.
Dividends: the portion of firm's profits that the firm pays out each period to its shareholders.
Fiscal policy: Government policies concerning taxes and spending.
Monetary policy: the tools used by the Federal Reserve to control the quantity of money, which in turn affects interest rates.
Great Depression: the period of severe economic contraction and high unemployment that began in 1929 and continued throughout the 1930s.
Fine-tuning: the phrase used by Walter Heller to refer the government's role in regulating inflation and unemployment.
Stagflation: a situation of both high inflation and high unemployment.
******************************************************************************************************************************************************
Chapter 6
National income and product accounts: data collected and published by the government describing the various components of national income and output in the economy.
Gross domestic product (GDP): the total market value of all final goods and services produced within a given period by factors of production located within a country.
Final goods and services: goods and services produced for final use.
Intermediate goods: goods that are produced by one firm for use in further processing by another firm.
Value added: the difference between the value of goods as they leave a stage of production and the cost of the goods as they entered that stage.
Gross national product (GNP): the total market value of all final goods and services produced within a given period by factors of production owned by a country's citizens, regardless of where the output is produced.
Expenditure approach: a method of computing GDP that measures the total amount spent on all final goods and services during a given period.
Income approach: a method of computing GDP that measures the income-wages, rents, interest, and profits- received by all factors of production in producing final goods and services.
Personal consumption expenditure (C): expenditure by consumers on goods and services.
Durable goods: goods that last a relatively long time, such as cars and household appliances.
Nondurable goods: goods that are used up fairly quickly, such as food and clothing.
Services: the things we buy that do not involve the production of physical things, such as legal and medical services and education.
Gross private domestic investment (I): total investment in capital-that is, the purchase of new housing, plants, equipment, and inventory by the private (or nongovernment) sector.
Nonresidential investment: expenditure by firms for machines, tools, plants, and so on.
Residential investment: expenditure by households and firms on new houses and apartment building.
Change in business inventories: the amount by which firms' inventories change during a period. Inventories are the goods that firms produce now but intend to sell later.
Depreciation: the amount by which an asset's value falls in a given period.
Gross investment: the total value of all newly produced capital goods (plant, equipment, housing, and inventory) produced in a given period.
Net investment: Gross investment minus depreciation.
Government consumption and gross investment (G): expenditures by federal, state, and local governments for final goods and services.
Net exports (EX-IM): the difference between exports (sales to foreigners of U.S. - produced goods and services) and imports (U.S. purchases of goods and services from abroad). The figure can be positive or negative.
National income: the total income earned by the factors of production owned by a country's citizens.
Compensation of employees: includes wages, salaries, and various supplements-employer contributions to social insurance and pension funds, for example- paid to households by firms and by the government.
Proprietors' income: the income of unincorporated businesses.
Rental income: the income received by property owners in the form of rent
Corporate profits: the income of corporations.
Net interest: the interest paid by business.
Indirect taxes minus subsidies: taxes such as sales taxes, customs duties, and license fees less subsidies that the government pays for which it receives no goods or services in return.
Net business transfer payments: net transfer payments by businesses to others.
Surplus of government enterprises: income of government enterprises.
Net national product (NNP): gross national product minus depreciation; a nation's total product minus what is required to maintain the value of its capital stock.
Statistical discrepancy: data measurement error.
Personal income: the total income of households.
Disposable personal income or after-tax income: personal income minus personal income taxes. The amount that households have to spend or save.
Personal saving: the amount of disposable income that is left after total personal spending in a given period.
Personal saving rate: the percentage of disposable personal income that is saved. If the personal saving rate is low, households are spending a large amount relative to their incomes; if it is high, households are spending cautiously.
Current dollars: the current prices they we pay for goods and services.
Nominal GDP: gross domestic measured in current dollars.
Weight: the importance attached to an item within a group of items.
Base year: the year chosen for the weights in a fixed-weight procedure.
Fix-weight procedure: a procedure that uses weights from a given base year.
Underground economy: the part of the economy in which transactions take place and in which income is generated that is unreported and therefore not counted in GDP.
Gross national income (GNI): GNP converted into dollars using an average of currency exchange rates over several years adjusted for rates of inflation.
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Chapter 7
Employed: Any person 16 years old or older (1) who works for pay, either for someone else or in his or her own business for 1 or more hours per week, (2) who works without pay for 15 or more hours per week in a family enterprise, or (3) who has a job but has been temporarily absent with or without pay
Unemployed: A person 16 years old or older who is not working, is available for work, and has made specific efforts to find work during the previous 4 weeks.
Not in the labor force: a person who is not looking for work because he or she does not want a job or has given up looking
Labor force: the number of people employed plus the number of unemployed.
Unemployment rate: the ratio of the number of people unemployed to the total number of people in the labor force.
Labor force participation rate: the ratio of the labor force to the total population 16 years old or older.
Discouraged-worker effect: the decline in the measured unemployment rate that results when people who want to work but cannot find jobs grow discouraged and stop looking, thus dropping out of the ranks of the unemployed and the labor force.
Frictional unemployment: the portion of unemployment that is due to the normal working of the labor market; used to denote short-run job/skill matching problems.
Structural unemployment: the portion of unemployment that is due to changes in the structure of the economy they result in a significant loss of jobs in certain industries.
Natural rate of unemployment: the unemployment that occurs as a normal part of the functioning of the economy. Sometimes taken as the sum of frictional unemployment and structural unemployment.
Cyclical unemployment: The increase in unemployment that occurs during recessions and depressions.
Consumer price index (CPI): A price index computed each month by the Bureau of Labor Statistics using a bundle that is meant to represent the "market basket" purchased monthly by the typical urban consumer.
Producer price indexes (PPIs) Measures of prices that producers receive for products at all stages in the production process.
Real interest rate: the difference between the interest rate on a loan and the inflation rate.
Output growth: the growth rate of the output of the entire economy.
Per-capita output growth: the growth rate of output per person in the economy.
Productivity growth: the growth rate of output per worker.
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Chapter 8
Aggregate output: the total quantity of goods and services produced (or supplied) in an economy in a given period.
Aggregate income: the total income received by all factors of production in a given period.
Aggregate output (income) (Y): a combined term used to remind you of the exact equality between aggregate output and aggregate income.
Consumption function: the relationship between consumption and income.
Marginal propensity to consume (MPC): that fraction of a change in income that is consumed, or spent.
Aggregate saving (S): the part of aggregate income that is not consumed.
Identity: something that is always true.
Marginal propensity to save (MPS): that fraction of a change in income that is saved.
Planned investment (I): those additions to capital stock and inventory that are planned by firms.
Actual investment: that actual amount of investment that takes place; it includes items such as unplanned changes in inventories.
Equilibrium: occurs when there is no tendency for change. In the macroeconomic goods market, equilibrium occurs when planned aggregate expenditure is equal to aggregate output.
Planned aggregate expenditure (AE): the total amount the economy plans to spend in a given period. Equal to consumption plus planned investment: AE=C+I.
Multiplier: the ratio of change in the equilibrium level of output to a change in come exogenous variable.
Exogenous variable: a variable that is assumed not to depend on the state of the economy- that is, it doesn’t change when the economy changes.
