Economics

• 1. maintaining employment of human resources at relatively high levels; meaning that there are enough jobs
• 2. maintaining prices at a relatively stable level so that consumers and producers can make better decisions
• 3. achieving a high rate of economic growth; meaning growth output per person over time

total value of all final goods and services produced in a given period

• 1. quality of life- reduce bads (pollution and crime) and increase goods (education and health services)
• 2.fairness in distribution of income or wealth
• 3. self-sufficiency in the production of certain goods and services

a commitment by the federal government to hold itslef accountable for short-run economic fluctuations

Humphrey-Hawkins Act

• 1. lower unemployment sends stocks to rise and vice versa
• 2. unemployment can cause financial insecurities and anxiety. Also tension and despair

the percent of the population ages 16 and older who are willing and able to work but are unable to obtain a job

Unemployment rate= number of unemployed/civilian labor force

# of people aged 16 and older who are available for employment

an individual who has left the labor force because they could not find a job

• 1. job losers- an individual who has been temporarily laid off or fired: 49%
• 2. job leaver- those who quit their jobs: 12%
• 3. reentrant- an individual who worked before and is now reentering the labor force: 30%
• 4. new entrant-an individual who has never had a job: 9%

a situation in which a worker's skill level is higher than necessary for a job

• Duration: Percent Unemployed
• less than 5 weeks: 39%
• 5-14 weeks: 30%
• 15-26 weeks: 15%
• 27+ weeks: 16%

% of the population in the labor force

unemployment that results from the workers searching for suitable jobs and firms looking for suitable workers; leads to seasonal unemployment

unemployment that results from workers not having the skills to obtain longterm employment; more long term and serious because workers dont hve marketable skills

unemployment due to short term cyclical fluctuations in the economy

the median unemployment rate, equal to the sum of frictional and structural unemployment when they are at a maximum

the amount of real output the economy would produce if its labour and other resources were fully employed, at the natural rate of unemployment

obstacles prevent wages from adjusting and balancing the quantity of labor demanded

an hourly wage floor set above the equilibrium wage

unions negotiate their wages and benefits collectively through their Union officials

theory stating that higher wages lead to greater productivity

• -recipients must have worked a certain length of timeand only lost their jobs because the employer no longer needed them
• -recipients make half their salary for only 26 weeks
• -this sometime leads to longer periods of unemployment

the average level of prices in the economy

rise in the overall price level; decreasein the purchasing power of money

decrease in the overall price level; increasing the purchasing power of money

the measure of the trend in prices of a basket of consumable goods and services to guage inflation

• -lowers incomein real-terms for people on a fixed-dollar income
• -can hurt creditors when they loan someone money with a fixed interest rate
• -inflation can discourage investment and economic growth
• -can raise one nation's price level relative to price levels in other countries

extremely high rates of inflation for sustained periods of time

the price of a specific good compared to the price of other goods

the costs imposed on a firm from changing listed price

the cost incurred when individuals reduced their money holdings because of inflation

the reported interest rate that is not adjusted for inflation

the nominal interest rate minus the inflation rate, also called the inflation adjusted interest rate

short term fluctuations in the economy relative to the long term tren in output

the output (real GDP) is rising significantly- the period between the trough of a recession and the next peak

the pointin time when expansion comes to an end, thatis, when outputis at the highest point in the cycle

when the economy is slowly down-measured from the peak to the trough

the point in time when output stops declining when business activity is at its lowest point in the cycle

a period of significant decline in output and employment

severe recession or contraction in output

period of prolonged economic expansion

factors that economists at commerce department have found typically change before changes in economic activity

measure of economic performance based on the value of all final goods and services produced within a country during a given period

GDP=C+I+G+(X-M)

adding the value of a good or service twice by mistakenly counting the intermediate goods and services in GDP

calculation of GDP by adding the expenditures by market participants on final goods and services over a given period

purchases of final goods and services

tangible items consumed in a short perod of time; such as food

longer-lived consumver goods, such as automobiles

intangible items of value provided to consumers, such as education

the creation of capital goods to augmentfuture production

all new spending on capital goods by producers

capital goods that increase future production capabilities

purchases that add to the stocks of goods kept by the firm to meet consumer demand

expenditures on goods and services

exports

wages (salaries),rent, interestpayments, and profits paid to the ownersof productive resources

the difference between netincome of foreigners and GDP

annual allowance set aside to replace work-out capital

GNP minus depreciation

taxes, such as sales tax, levied on goods and services sold

a measure of income earned by owners of the factors of production

the amoutn of income recievedby households before personal taxes

the personal income available after personal taxes

a measure of the trend in prices paid for a certain bundle of goods and services over a given period

a measure of the cost of a market basket that represents the sonsumption of a typical household

• housing-41%
• transportation-17
• foods and beverages-16
• education and communication- 6
• medical care-6
• recreation-6
• apparel-4
• other goods and services-4

a price index that helps measure the average price level of all final consumer goods and services produced

(cost of market basket in current year/ cost of market basket in base year) x 100

calculates changes in prices that uses base years from neighboring years

a measure of the cost of goods and services bought by a firm

real output of goods and services per person

The classical school believed that wages andprices adjust quicklyto changes in supply and demand. Jean Baptiste Say's law establishes that full employment can be maintained because total spending will be great enough for firms to sell all the output a fully employed economy can produce. The people who followed this were called classical economists.

He wrote The General Theory of Employment, Interest and Money which attacks the classical theories.

the relationship between real GDP and labor while holding capital, land, and technology constant

the sum of pricate and public savings

an economy with no international trade- net exports are 0 and imports are 0

the amount of income households have left over after consumption and net taxes

the amount of income the government has left over after paying for its spending

consuming more that total available income

theory that governmentborrowing drives up the interest rate, lowering consumption by households and investment spending by firms

and upward trend in the real per capita output of good and services

take the nations growth rate and divide by 70

the amount of goods and services a worker can produce per hour

• 1. the quantity and quality of labor resources (labor and human capital)
• 2. increase in the use of inputs provided by the land (natural resources)
• 3. physical capital inputs (machines, tools, buildings, inventories)
• 4. technological knowledge

applications of new knowledge that create new products or improve existing products

activities undertaken to create new products and processes that will lead to technological progress

an economic historian and won the Nobel Prize in economics in 1993. He made links between institutional changes and economic growth.

Won the Nobel Prize

• he was a reverand and an economist. He made 3 assumptions:
• 1. the economy was agricultural, with goods produced by 2 inputs,land and labor
• 2. the supply of land was fixed
• 3. human sexual desires worked to increase population

the total demand for all the final goods and services in the economy

a type of model that includes international trade effects

the difference between the calue of exports and the value of imports

graph that shows the inverse relationship between the price level and RGDP demanded

increase in price level= households and firmsreduce their holdings of money and save more= supplyof loanable funds increases= interest rates fall= households and firmsare encouraged to borrow and spend= RDP demanded increases

vice versa for decrease in price level

the total quantity of final goods and services suppliers are willing and able to supply at a given price level

the graphical relationship between RGDP and the price level when output prices can change but input prices are unable to adjust

unexpected temporary events that can either increase or decrease aggregate supply

a situation in which lower growth and higher prices occur together

aprice levelincrease due to a negative supply shock or increases in input prices

the tendency for prices and wages to only adjust downward to changes in the economy