| A | B |
|---|
| expansionary supply shock | a positive "surprise" that expands the output of a country (new energy discovery) |
| frictional unemployment | choose to leave job for better one |
| technological unemployment | a robot or machine takes your job |
| structural unemployment | economy changes and you lose your job; outsourcing jobs, technology, consumer tastes change |
| cyclical unemployment | business cycle (recession) costs you your job |
| seasonal unemployment | change in weather costs you your job |
| not counted in official unemployment rate | underemployed, discouraged workers |
| factors that increase labor productivity | capital goods, human capital, technology, education |
| GDP equation | GDP = C + G + I + Xn |
| Which part of GDP can be a negative number? | Net exports (if imports are higher than exports) |
| expansion | phase of business cycle when GDP is increasing |
| recession | contraction phase of GDP for two or more consecutive quarters |
| peak | point on business cycle when GDP begins to fall |
| trough | point on business cycle when GDP begins to rise and stops falling |
| depreciation | dollar decline in value of used capital goods; subtract it from GDP |
| equilibrium price | the price at which the quantity demanded of a good is equal to the quantity supplied |
| consumer price index (CPI) | measures changes in market basket of consumer goods |
| market basket | group of selected goods and services used to develop a price index |
| GDP deflator | PRICE INDEX used to convert nominal GDP into real GDP |
| new homes count in which part of GDP | private investment |
| natural rate of unemployment | full employment for a country; no cyclical unemployment |
| intermediate goods | ingredients, not counted in GDP |
| nonmarket transactions | not counted in GDP, no money exchanged |
| underground economy | illegal transactions, not counted in GDP |
| sales by foreign firms | not counted in GDP (if produced outside the country) |
| human capital | education and job training |
| standard of living measured by: | per capita real GDP |
| nominal interest rate | real interest rate + inflation rate |
| real interest rate | nominal interest rate - inflation rate = real interest rate |
| households produce and consume: | produce: resources; consume: goods and services |
| businesses produce and consume: | produce: goods and services; consume: resources (factors of production) |
| unanticipated inflation helps: | debtors |
| unanticipated inflation hurts: | creditors (lenders), people with fixed income |
| what happens to inflation during typical recession? | inflation falls |
| what happens to unemployment during recession? | rises |
| what happens to GDP during recession? | falls |
| investment (I) includes | capital goods, inventory adjustments, new housing |
| cost-of-living adjustment (COLA) | protects a worker from inflation (their pay rises) |
| Okun's law | every 1% unemployment above natural rate = 2% drop in GDP |
| what leads to inflation? | increased costs of production; increase in money supply |
| USA's natural rate of unemployment | 4.5 % |
| national income | wages, interest, profits, salaries |
| price floor | government mandate that keeps the price of a product ABOVE it's equilibrium price |
| economic growth | rising real GDP per capita |
| productivity | measure of how many inputs (labor hours, capital goods) it takes to produce a certain level of output (goods/services) |
