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deadweight loss
the fall in total surplus that results from a market distorition, such as a tax
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world price
the price of a good that prevails in the world market for that good
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tariff
a tax on goods produced abroad and sold domestically
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Microeconomics
the study of how households and firms make decisions and how they interact in markets
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macroeconomics
the study of economy-wide phenomena including inflation, unemployment, and economic growth.
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gross domestic product (GDP)
The market value of all final goods and services produced within a country in a given period of time.
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consumption
spending by households on goods and services, with the exception of purchases of new housing
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investment
spending on capital equipment, inventories, and structures, including household purchases of new housing
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government purchases
spending on goods and services by local, state, and federal governments.
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net exports
spending on domestically produced goods by foreigners (exports) minus spending on foreign goods by domestic residents (imports).
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GDP deflator
a measure of the price level calculated as the ratio of nominal GDP to real GDP times 100 (Nominal GDP/Real GDP) * 100
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consumer price index (CPI)
a measure of the overall cost of teh goods and services bought by a typical consumer
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inflation rate
the percentage change in the price index from the preceding period. inflation rate = (CPIyear2-CPIyear1)/CPIyear1 X 100
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Producer price index (PPI)
a measure of the cost of a basket of goods and services bought by firms.
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indexation
the automatic correction of a dollar amount for the effects of inflation by law or contract.
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Nominal interest rate
the interest rate as usually reported without a correction for the effects of inflation
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Real interest rate
- the interest rate corrected for the effects of inflation.
- Real interest rate = nominal interest rate - inflation rate
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productivity
the amount of goods and services a worker produces in each hour of work.
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Physical capital
the stock of equipment and structures that are used to produce goods and services.
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Human capital
the knowledge and skills that workers acquire through education, training, and experience.
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Natural resources
the inputs into the production of goods and services that are provided by nature, such as land, rivers, and mineral deposits
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technological knowledge
society's understanding of the best ways to produce goods and services
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diminishing returns
the property whereby the benefit from an extra unit of an input declines as the quantity of the input increases
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catch-up effect
the property whereby countries that start off poor tend to grow more rapidly than countries that start off rich
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Labor force
the total number of workers, including both the employed and the unemployed. Labor force = Number of employed + Number of unemployed.
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Unemployment rate
the percentage of the labor force that is unemployed. Unemployment rate = (Unber of unemployed/labor force) X 100%
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Labor-force participation rate
the percentage of the adult population that is in the labor force. Labor-force participation rate = (Labor force/Adult population) X 100%
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natural rate of unemployment
the normal rate of unemployment around which the unemployment rate fluctuates.
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cyclical unemployment
the deviation of unemployment from its natural rate
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discouraged workers
individuals who would like to work but have given up looking for a job.
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frictional unemployment
unemployment that results because it takes time for workers to search for the jobs that best suit their tastes and skills.
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structural unemployment
unemployment that results because the number of jobs available in some labor markets is insufficient to provide a job for everyone who wants one.
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job search
the process by which workers find appropriate jobs given their tastes and skills.
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unemployment insurance
a government program that partially protects workers' incomes when they become unemployed.
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union
a worker association that bargains with employers over wages and working conditions.
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collective bargaining
the process by which unions and firms agree on the terms of employment
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strike
the organized withdrawal of labor from a firm by a union
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efficiency wages
above-equilibrium wages paid by firms in order to increase worker productivity.
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