Economics 20200-51: Principles Of Macroeconomics

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abstraction

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ignoring many details so as to focus on the most important elements of a problem.

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correlation

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Two variables are said to be correlated if they tend to go up or down together. Correlation need not imply causation.

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economic model

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a simplified, small-scale version of some aspect of the economy Economic models are often expressed in equations, by graphs, or in words

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opportunity cost

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The best alternative that we forgo, or give up, when we make a choice

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theory

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Is a deliberate simplification of relationship is used to explain how those relationships work

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closed economy

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one that does not trade with other nations in either goods or assets

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mixed economy

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one with some public influence over the workings of free markets. There may also be some public ownership mixed in with private property.

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progressive tax

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is one in witch the average tax rate paid by an individual rises as income rises

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factors of production

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are the inputs into the process of production. Labor, machinery, buildings and natural resources used to make outputs

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open economy

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One that trades with other nations in foods and services, and perhaps also trades in financial assets

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recession

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is a period during which aggregate output declines. Conventionally, a period in which aggregate output declines for two consecutive quarters

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gross domestic product (GDP)

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the total market value of all final goods and services produced within a given period by factors of production located within a country

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outputs

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of a firm or an economy are the goods and services it produces.

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transfer payments

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cash payments made by the government to people who do not supply goods, services, or labor in exchange for these payments. They include social security benefits, veterans’ benefits, and welfare paymentsx

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allocation of scarce resources

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refers to the society's decisions on how to divide up its scare input resources among the different outputs produced in the economy and among the different firms or other organizations that produce thouse outputs.

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comparative advantage

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What one country is said to have over another in the production of a particular good relative to other goods if it produces that good less inefficiently as compared with the other country.

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division of labor

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means breaking up a task into a number of smaller, more specialized tasks so that each worker can become more adept at a particular job

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efficiency

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given current technological knowledge, there is no way one can produce larger amounts of any output without using a larger input amounts of giving up some quantity of another output

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inputs

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factors of productions are the labor, machinery, buildings and natural resources used to make outputs.

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market system

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a form of economic organization in which resource allocation decisions are left to individual produces and consumers acting in their own best interests without central direction

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optimal decision

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Best servers the objectives of the decision maker whatever those objectives may be. It is selected by explicit or implicit comparison with the possible alternative choices.

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outputs

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The goods or services a firm or economy produce

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principle of increasing costs

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it states that as the production of a good expands, the opportunity cost of producing another unit generally increases

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production possibilities frontier

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A curve that shows the maximum quantities of outputs it is possible to produce with the available resource quantities and the current state of technological knowledge

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resources

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instruments provided by nature or by people that are used to create goods and services; three types often referred to as land, labor and capital

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demand curve

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is a graph illustrating how much of a given product a household would be willing to buy at different prices

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demand schedule

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a table showing how much of a give product a household would be willing to buy at different prices

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equilibrium

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is a situation in which there are no inherent forces that produce change.

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invisible hand

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describes how, by pursuing their own self-interest. People in a market system are led by this " " to promote the well being of the community

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law of supply and demand

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it states in a free market the forces of supply and demand generally push the price toward the level at which quantity supplied and quantity demanded are equal.

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price ceiling

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a maximum price that sellers may charge for a good, usually set by the government

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price floor

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a minimum price below which exchange is not permitted

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quantity demanded

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amount (number of units) of a product that a household would buy in a given period if it could buy all it wanted at the current market price

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quantity supplied

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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

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shift in a demand curve

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corresponding to a new relationship between quantity demanded of a good and price of that good. Brought about by a change in the original conditions.

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shortage

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an excess of quantity demanded over quantity supplied. Buyers cannot purchase the quantities they desire at the current price.

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supply curve

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Graph illustrating how much of a product a firm will sell at different prices.

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supply schedule

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Table showing how much of a product firms will sell at different prices.

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supply-demand diagram

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graphs the supply and demand curves together. It also determines the equilibrium price and quantity.

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surplus

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sellers cannot sell the quantities they desire to supply at the current price.

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aggregate demand curve

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shows the quantity of domestic product that is demanded at each possible value of the price level.

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aggregate supply curve

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shows for each possible price level, the quantity of goods and services that all the nation's businesses are willing to produce during a specified period of time, holding all other determinants of aggregate quantity supplied constant

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aggregation

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combining many individual markets into one overall market.

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deflation

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refers to a sustained decrease in the general price level.

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final goods and services

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those that are purchase by their ultimate users

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fiscal policy

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refers to government policies concerning taxes and expenditures (spending)

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inflation

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refers to a sustained increase in the general price level.

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intermediate good

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these are produced by one firm for use in further processing by another firm. These do not count toward GDP

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monetary policy

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refers to actions taken by the Federal Reserve to influence aggregate demand by changing interest rates

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nominal GDP

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measured in current dollars. This can be misleading, as it does not account for inflation

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real GDP

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is calculated by valuing outputs of different years at common prices

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real GDP per capita

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the ratio of real GDP divided by population

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recession

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is a period during which aggregate output declines. Conventionally, a period in which aggregate output declines for two consecutive quarters

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stabilization policy

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the name given to government programs designed to prevent or shorten recessions and to counteract inflation.

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stagflation

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is inflation that occurs while the economy is growing slowly or in a recession

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capital gain

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is the difference between the price at which an asset is sold and the price at which it was bought

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cyclical unemployment

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is the portion of unemployment that is attributable to a decline in the economy’s total production.

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discouraged workers

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an unemployed person who gives up looking for work and is therefore no longer counted as part of the labor force

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economic growth

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is an increase in the total output of an economy

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frictional unemployment

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is unemployment that is due to normal turnover in the labor market. It includes people who are temporarily between jobs because they are moving or changing occupations, or are underemployed for similar reasons

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full employment

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is a situation in which everyone who is willing and able to work can find a job. At full employment, the measured unemployment rate is still positive

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growth policy

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refers to government policies intended to make the economy grow faster in the long run.

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labor force

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the number of people holding or seeking jobs.

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labor productivity

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the amount of output a worker turns out in an hour (or a week, or a year) of labor. If output is measured by GDP, it is GDP per hour of work.

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nominal rate of interest

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the percentage by which the money the borrower pays back exceeds the money that was borrowed, making no adjustment for any decline in the purchasing power of this money that results from inflation.

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potential GDP

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The real GDP that the economy would produce if its labor and other resources were fully employed

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production function

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shows the volume of outputs that can be produced from given inputs (such as labor and capital), given the available technology.

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purchasing power

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The “ “ of a given sum of money is the volume of goods and services that it will buy

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real rate of interest

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is the percentage increase in purchasing power that the borrower pays to the lender for the privilege of borrowing . It indicates the increases ability to purchase goods and services that the lender earns

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real wage rate

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indicates the volume of goods and services that the normal wages will buy

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relative price

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its price in terms of some other item rather than in terms f dollars

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structural unemployment

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refers to workers who have lost their jobs because they have been displaced by automation, because their skills are no longer in demand, or because of similar reasons

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unemployment insurance

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is a government program that replaces some of the wages lost by eligible workers who lose their jobs

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unemployment rate

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the number of unemployed people, expressed as a percentage of the labor force.

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capital

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is its available supply of plant, equipment, and software. It is the result of past decisions to make investments in these items.

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capital formation

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synonymous with investment. It refers to the process of building up the capital stock.

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convergence hypothesis

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holds that nations with low levels of productivity tend to have high productivity growth rate, so that international productivity differences shrink over time.

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cost disease of the personal services

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is the tendency of the costs and prices of these services to rise persistently faster than those of the average output in the economy.

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development assistance “foreign aid”

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refer to outright grants and low-interest loans to poor countries from both rich countries and multinational institutions like the World Bank. The purpose is to spur economic development.

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foreign direct investment

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is the purchase or constructions of real business assets such as factories, offices, and machinery – in a foreign country.

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human capital

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is the amount of skill embodied in the workforce. It is most commonly measured by the amount of education and training.

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innovation

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the process that begins with invention and includes improvement to prepare the inventions for practical use and marketing of the invention or its products.

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invention

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The act of discovering new products or new ways of making products.

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investment

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Is the flow of resources into the production of new capital. It is the labor, steel, and other inputs devoted to the construction of factories, warehouses, railroads, and other pieces of capital during some period of time.

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multinational corporations

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corporations, generally large ones, which do business in many countries. Most, but bot all, of these corporations have their headquarters in developed countries.

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On-the-job training

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refers to skills that workers acquire while at work, rather than in school or in formal vocational training programs.

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property rights

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are laws and/or conventions that assign owners the “ “ to use their property as they see fit (within the law) for example, to sell the property and to reap the benefits (such as rents or dividends) while they own it.

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research and development

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is the activity of firms, universities, and government agencies that seeks to invent new products and processes and to improve those inventions so that they are ready for the market or other users.