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Reference(s):
Macroeconomics by McConnell and Brue
gross
domestic product (GDP) The total
market value of all final goods and services produced annually within the
boundaries of the United States, whether by U.S. or foreign-supplied resources
intermediate
goods Products
that are purchased for resale or further processing or manufacturing.
final
goods and services Goods and
services that have been purchased for final use and not for resale or further
processing or manufacturing.
multiple
counting Wrongly including
the value of intermediate goods in the gross domestic product; counting the
same good or service more than once.
expenditures
approach The method that
adds all expenditures made for final goods and services to measure the gross
domestic product.
disposable
income Personal income
less personal taxes; income available for personal consumption expenditures and
personal saving.
nominal
GDP The GDP measured in
terms of the price level at the time of measurement (unadjusted for inflation).
price
index An index number
that shows how the weighted-average price of a “market basket” of goods changes
over time.
real GDP Gross domestic product adjusted for
inflation; gross domestic product in a year divided by the GDP price index for
that year, expressed as a decimal.
consumer
price index (CPI) An index
that measures the prices of a fixed “market basket” of some 300 goods and
services bought by a “typical” consumer
Chapter 8
economic
growth (1) An outward
shift in the production possibilities curve that results from an increase in
resource supplies or quality or an improvement in technology; (2) an increase
of real output (gross domestic product) or real output per capita.
productivity A measure of average output or real output
per unit of input. For example, the productivity of labor is determined by
dividing real output by hours of work.
business
cycle Recurring increases
and decreases in the level of economic activity over periods of years; consists
of peak, recession, trough, and recovery phases.
peak High point of the business cycle at which
business activity has reached a temporary maximum. Here the economy is a full
employment and the level of real output is at or very close to the economy’s
capacity. The price level is likely to ruse during this phase.
recession A period of decline in total output, income,
employment, and trade. This downturn, which lasts 6 months or more, is marked
by the wide-spread contraction of business activity in many sectors of the
economy. But because many prices are downwardly inflexible, the price level is
likely to fall only if the recession is severe and prolonged – that is, only if
a depression occurs.
trough In the trough of the recession or depression,
output and employment “bottom out” at their lowest levels. The trough phase may
be either short-lived or quite long.
recovery In the expansion or recovery phase, output
and employment rise toward full employment. As recovery intensifies, the price
level may begin to rise before full employment and full-capacity production
return.
demand-pull
inflation Increases in the
price level (inflation) resulting from an excess of demand over output at the
existing price level, caused by an increase in aggregate demand.
cost-push
inflation Increases in the
price level (inflation) resulting from an increase in resource costs (for
example, raw-material prices) and hence in per-unit production costs; inflation
caused by reductions in aggregate supply.
labor
force Persons 16 years of
age and older who are not in institutions and who are employed or are
unemployed (and seeking work).
unemployment
rate The failure to use
all available economic resources to produce desired goods and services; the
failure of the economy to fully employ its labor force.
discouraged
workers Employees who have
left the labor force because they have not been able to find employment.
frictional
unemployment A type of
unemployment caused by workers voluntarily changing jobs and by temporary
layoffs; unemployed workers between jobs.
structural
unemployment Unemployment of
workers whose skills are not demanded by employers, who lack sufficient skill
to obtain employment, or who cannot easily move to locations where jobs are
available.
cyclical
unemployment A type of
unemployment caused by insufficient total spending (or by insufficient
aggregate demand).
full
employment (1) The use of all
available resources to produce want-satisfying goods and services; (2) the
situation in which the unemployment rate is equal to the full-employment
unemployment rate and there is frictional and structural but no cyclical
unemployment (and the real GDP of the economy equals its potential output).
natural
rate of unemployment The
full-employment unemployment rate; the unemployment rate occurring when there
is no cyclical unemployment and the economy is achieving its potential output;
the unemployment rate at which actual inflation equals expected inflation.
nominal
income The number of
dollars received by an individual or group for its resources during some period
of time.
real
income The amount of goods
and services that can be purchased with nominal income during some period of
time; nominal income adjusted for inflation.
cost-of-living-adjustment
(COLA) An automatic
increase in the incomes (wages) of workers when inflation occurs; guaranteed by
a collective bargaining contract between firms and workers.
deflation A decline in the economy’s price level.
hyperinflation A very rapid rise in the price level; an
extremely high rate of inflation.
Chapter 9
consumption
schedule A schedule showing
the amounts households plan to spend for consumer goods at different levels of
disposable income.
savings
schedule A schedule that
shows the amounts households plan to save (plan not to spend for consumer
goods), at different levels of disposable income.
average
propensity to consume (APC) Fraction (or
percentage) of disposable income that households plan to spend for consumer
goods and services; consumption divided by disposable income.
average
propensity to save (APS) Fraction (or
percentage) of disposable income that households save; saving divided by
disposable income.
marginal
propensity to consume (MPC) The fraction
of any change in disposable income spent for consumer goods; equal to the
change in consumption divided by the change in disposable income. The MPC is
the slope (DC/DDI) of the
consumption schedule.
marginal
propensity to save (MPS) The fraction
of any change in disposable income that households save; equal to the change in
saving divided by the change in disposable income. The MPS is the slope (DS/DDI) of the
saving schedule.
expected
rate of return The increase in
profit a firm anticipates it will obtain by purchasing capital (or engaging in
research and development); expressed as a percentage of the total cost of the
investment (or R&D) activity.
Chapter 10
multiplier The ratio of a change in the equilibrium GDP
to the change in investment or in any other component of aggregate expenditures
or aggregate demand; the number by which a change in any component of aggregate
expenditures or aggregate demand must be multiplied to find the resulting
change in the equilibrium GDP.
net
exports Exports minus
imports.
lump-sum
tax A tax that is a
constant amount (the tax revenue of government is the same) at all levels of
GDP.
balanced-budget
multiplier The extent to which
government expenditures and tax collections are equal each year.
recessionary
gap The amount by which
the aggregate expenditures schedule must shift upward to increase the real GDP
to its full-employment, noninflationary level.
inflationary
gap The amount by which
the aggregate expenditure schedule must shift downward to decrease the nominal
GDP to its full-employment
noninflationary level.
Chapter 11
aggregate
demand-aggregate supply model
The macroeconomic model that uses aggregate demand and aggregate supply
to determine and explain the price level and the real domestic output.
real-balances
effect The tendency for increases in the price level to lower the
real value (or purchasing power) of financial assets with fixed money value
and, as a result, to reduce total spending and real GDP, and conversely for
decreases in the price level.
interest-rate
effect The tendency for
increases in the price level to increase the demand for money, raise interest
rates, and, as a result, reduce total spending and real output in the economy
(and the reverse for price-level decreases)
foreign
purchase effect The inverse
relationship between the net exports of an economy and its price level relative
to foreign price levels.
determinants
of aggregate demand (AG) Factors such
as consumption spending, investment, government spending, and net exports that,
if they change, shift the aggregate demand curve.
determinants
of aggregate supply (AS) Factors such
as input prices, productivity, and the legal-institutional environment that, if
they change, shift the aggregate supply curve.
horizontal
range (of AS curve) The
horizontal segment of the aggregate supply curve along which the price level is
constant as real domestic output changes.
intermediate
range (of AS curve) The
upward-sloping segment of the aggregate supply curve lying between the
horizontal range the vertical range.
vertical
range (of AS curve) The vertical
segment of the aggregate supply curve along which the economy is at full
capacity.