Praxis Social Studies: Chapter 67

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Factors of production

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are the resources people use to produce goods and services

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consumer goods

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is any good purchased for consumption and used later to produce another consumer good

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Inflation

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is the rate of increase in prices over a given period of time; rising overall prices

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Deflation

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is the overall decrease in the cost of an economy's goods and services; overall average falling prices

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Consumer Price Index (CPI)

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CPI is a measurement of a selection of consumer goods and services from different sectors of the market and their average price over a period of time: measure of the average change in the prices paid by urban consumers for a market basket of consumer goods and services

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Purchasing power

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the value of a currency expressed in terms of the number of goods or services that one unit of money can buy

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Basket of Goods & Services

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refers to a fixed set of consumer goods or services, the prices of which are used to measure a nation's rate of inflation

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Nominal Terms

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is the term used to describe monetary value of something before the adjustment for inflation or cost of living index

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Real Terms

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real is the term used to describe the actual value after taking inflation and cost of living into account

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Cost of living

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is the amount of money needed to sustain a certain standard of living by affording expenses such as housing, food, taxes, and healthcare

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Gross Domestic Product

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is the measure of an economy's total output by measures the total amount of goods and services made and consumed in a country; GDP is the broadest way to measure economic growth

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GDP deflator

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measures changes in the prices of goods and services produced in the U.S., including those exported to other countries

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Substitution Bias

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occurs if consumers change their purchasing power behavior in response to relative price changes

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Substitution Effect

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is the decrease in sales for a product that can be attributed to consumers switching to cheaper alternatives when its price rises

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Wage growth

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is the increase in the value of wages over the years that increases the worker's buying power; wage growth is usually adjusted due to inflation

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Nominal wage

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is the literal amount of money you get paid per hour or by salary; it does not consider the inflation effects or buying power of money

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Real wage

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the amount of pay a person can expect to receive after factoring in the current inflation rate

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Nominal Gross Domestic Product

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measures the current production of an economy at current prices and is the total market value of goods and services produced, measure in current dollars

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Real Gross Domestic Product

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measures the current production at past price; it removes the effect of rising prices

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How to calculate Real GDP

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1.) use base year prices and factor them into a comparisons year's quantity of goods produced

2.) use an inflator deflator model to find out the accurate rate of inflation divided into Nominal GDP

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Underground economy

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involves the exchange of goods and services which are hidden from official view, includes not only illegal activities but also unreported income from the production of legal goods and services, either from monetary or barter transactions

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Growth rate of Gross Domestic Production

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The annual average rate of change of the gross domestic product (GDP) at market prices based on constrast local currency, for a given national economy, during a specified period of time

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Real GDP growth rate

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measures the economic growth as expressed by GDP from one period to another, adjusted for inflation or deflation

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Nominal GDP growth rate

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is an assessment of economic production in an economy that includes current prices in it calculations

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Multiplier Effect

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refers to how finacial injections and leakages cause proportionately larger increases and decreases in general income

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Marginal propensity to consume

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is the proportion of an increase in income that gets spent on consumption

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Marginal propensity to save

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is the proportion of an increase in the income that gets saved instead of spent on consumption

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Simple spending multiplier

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also known as the expenditure formula, specificallu focuses on the component of spending in the economy, this spending relates to government fiscal policy and private sector investment