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Macroeconomics Chp. 1, 2, 5, 6, 7


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An approach to economics that analyzes outcomes of economic behavior, evaluatates them as good or bad and may prescribe courses of action Also known as policy economics
Normative economics
A formal statement of a theory, usually a mathematical statement of a presumed relationship between two or more variables.
The compilation of data that describe phenomena and facts
Descriptive economics
A statement or set of related statements about cause and effect, action and reaction
Descriptive economics
An approach to economics that seeks to understand behavior and the operation of systems without making judgements Describes what exists and how it works
Positive economics
The brankch of economics that examines the functioning of individual industries and the behavior of individual decision making units (households and businesses)
The branch of economics that examines the economic behavior of aggregates on a national scale (Aggregate income, employment, output)
A measure that can change from time to time or from observation to onservation
The principle that irrelevant detail should be cut away
Ockham\'s razor
\"after this\" A commmon error make in thinking about causations If event A occurs before event B, it is not necessarily true that event A caused B
Post hoc
The erroneous belief that what is true for a part is necessarily true for the whole
Fallacy of composition
an efficient economy is one that produces what people want at the least possible cost
An increase the total output of an economy
Economics growth
A condition in which national output is growing steadily, with low inflation and full employment of resources
Criteria for judging economic out comes
1. Efficiency 2. Equity 3. Growth 4. Stability
A two-dimensional representation of a set of numbers or data
A graph used to see how a single measure or variable changes over time
Time series graph
Things that are themselves produced and that are then used in the production of other goods and services
The inputs into the process of production. Another word for resources
Anything provied by nature or previous generations that can be used directly or indirectly to satisfy human wants
Usable products
The best alternative that we give up or forgo, when we make a choice or decision
Opportunity cost
Ricardo\'s theory that specialization and free trade will beneift all trading parties, even those that may be absolutely more efficient producers
Theory of comparative advantage
A producer has an absolute advantage over another in the production of a good or service if it can produce that product using fewer resources
Absolute advantage
A producer has a comparative advantage over another in the production of a good or service if it can produce that product at a lower opportunity
Comparative advantage
Goods produced for present consumption
Consumer goods
The process of using resources to produce new capital
A graph that shows all the combinations of goods and services that can be produced if all of society\'s resources are used efficiently
Production Possibility frontier
The slope of production possibility frontier
Marginal rate of transformation
An increase in the total output of an economy. Occurs when a society acquires new resources or when it learns to produce more using existing resources
Economic growth
An economy in which a central government either directly or indirectly sets output targets. income, and prices
Command economy
An economy in which individual people and firms pursue own self-interests without any central direction or regulation
Laissez-faire economy
The institution through which buyers and sellers interact and engage in exchange
The freedom of individuals to start and operate private businesses in search of profits
Free enterprise
The behavior of all households and firms together
Aggregate behavior
The microeconomics principles underlying macroeconomic analysis
Microeconomics foundations of macroeconomics
The period of severe econimcs contraction and high unemplyment that began in 1929 and continued throughout the 1930s
Great Depression
The phrase used by Walter Heller to refer to the government\'s role in regulating inflation and unemployment
A decrease in the overall price
The cycles of short-term ups and downs in the economy
Business cycle
Th total quanity of goods and services produced in an economy in given period
Aggregate output
A period during which aggregate output declines for two consecutive quarters
Government policies that focus on stimulating aggregate supply instead of aggregate supply instead of aggregate demand
Supply-side policies
A diagram showing the income received and payments made by each sector of the economy
Circular flow
Cash payments made by the government to people who do not supply good, services, or labor in exchange for these payments
Transfer payments
Promissory notes issued by the federal government when it borrows money
Treasury bonds, notes, bills
Financial insturments that give to the holder a share in the firms ownership and therefore the right to share in the firms profits
Share of stock
The portion of a corporation profits that the firm pays out each period to its shareholders
The total demand for goods and services in an economy
Aggregate demand
The total supply of goods and services in an economy
Aggregate supply
The period in the business cycle from a trough up to a peek, during which output an employment rise
Expansion or boom
The period in the business cycle from a peak down to a trough, during which output and employment fall
Goods and services produced for final use
Final goods and services
GOods that are produced by one firm for us in further processing by another firm
Intermediate goods
The difference between the value of goods as they leave a stage of production and cost of the goods as they entered the stage
Value added
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 produces
Gross national product (GDP)
A method of computing GDP that measures the amount spent on all final goods during a given period
Expenditure approach
A method of computing GDP that measures the income--wages, rents, interest, and profits--recieved by all factors of production in producing final goods
Income approach
A major component of GDP: Expenditures by consumers on goods and services
Personal Consumption expenditures
Goods that last a relatively long time, such as cars and household appliances
Durable goods
Goods that are used up fairly quickly such as food and clothing
nondurable goods
The things we buy that do not involve the production of physical thing such as legal and medical services and education
Total investment in capital--that is the purchase of new housing, plants, equipment, and inventory by the private or non government sector
Gross private domestic investment
Expenditures by firms for machines, tools, plants, and so on
Nonresidential investent
Expenditures by households and firms on new houses and apartment buildings
Residential investment
The amount by which firms\' inventories change during a period. inventories are the goods that firm produce now bu intend to sell later.
Change in business inventories
The amount by which an asset\'s value falls in a given period
The total value of all newly produced capital goods produced in a given period
Gross investment
Gross investment minus depreciation
Net investment
Expenditures by federal, state, and local government for final goods and services
Government consumption and gross investment
The difference between exports and imports
Net exorts
The percentage of disposable personal income that is saved
Personal saving rate
The current prices that one pays for goods and services
Current dollars
Gross domestic product measured in current dollars
Nominal GDP
The importance attached to an item withing a group of items
The year chosen for the weights in a fixed-weight procedure
Base year
A procedure that uses weights from a given base year
Fixed-weight procedure
The part of the economy in which transactions take place and in whihc income is generated that is unreported and therefore not counted in GDP
Underground economy
GNP converted into dollars using an average of currency exchange rates over several years adjusted for rates of inflation
Gross national income (GNI)
The growth rate of the output of the entire economy
Output growth
The growth rate of output per person in the economy
Per-captia output growth
The growth rate of output per worker
Productivity growth
A prolonged and deep recession. The precise definitions of prolonged and deep are debatable
Any person 16 years old or older who works for pay either for someone else or in i or her own business for one or more hours per week. Works 15 hours without pay. Who has a job but has been temporarily absent or without pay
A person 16 or older who is not working, is available for work and has made specific efforts to find work during the previous 4 weeks
A person who is not looking for work because he or she either does not want a job or has given up looking
Not in the labor force
The number of people employed plus the number of unemployed
Labor force
The ration of the labor force to the total population 16 years old or older
Labor force participation rate
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
Discouraged-worker effect
An increase in the overall price level
An increase in the overall price level that continues over a significant period
Sustained inflation
A price index computed each month b the Bureau of Labor Statistics using a bundle that is meant to represent the \"market basket\" purchased monthly by the typical urban consumer
Consumer price index (CPI)
Measures of prices that producers receive for products at all stages in the production process
Producer price indexes (PPIs)
The difference between the interest rate on a loan and the inflation rate
Real interest rate

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