Chapters 5-9 Macroeconomics

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Market Failure
A situation in which the market economy leads to too few or too many resources going to a specific economic activity
Third Parties
Parties who are not directly involved in a given activity or transaction
Positive Externality
occurs if an activity creates benefits to uninvolved people
Negative Externality
Occurs if an activity creates costs to uninvolved people
Real Value
value adjusted for inflation or purchasing power vs. some base period
Nominal Value
Value not adjusted for inflation nor the reduction in purchasing power
Deflation
A sustained decrease in the average of all prices of goods and services in an economy
Inflation
A sustained increase in the average of all prices of goods and services in an economy
Seasonal Unemployment
Results from the the seasonal pattern of work in specific industries
Cyclical Unemployment
Refers to unemployment resulting from business recessions
Structural Unemployment
Structural changes in our economy cause some workers to become unemployed for very long periods of time because they cannot find jobs that use their particular skills
Frictional Unemployment
Refers to people who either change jobs or take new jobs
Labor Force
Adults who either have jobs or who are actively looking and available for jobs
Dynamic Tax Analysis
Recognizes that higher tax rates may shrink the tax base
Static Tax Analysis
Assumes that changes in the tax rate have no effect on the tax base
Capital Loss
The negative difference between the purchase price and the sale price of an asset
Capital Gain
The positive difference between the purchase price and the sale price of an asset
Proportional Tax System
A tax system in which the tax bill comprises exactly the same proportion
Regressive Tax System
A tax system in which as more dollars are earned, the percentage of tax paid on them falls
Progressive Tax System
As your income increases, the tax rate on each additional layer of income also increases
Tax Rate
The percentage tax the Government is changing on this tax base
Tax Base
What you are going to tax
Transfer Payments
Cash payments made by governments to individual for which in return no services or goods are rendered
Transfers “In Kind”
Non-cash payments that are in the form of goods and services
Medicare
Healthcare for the old
Consumer Price Index (CPI)
A price index measuring the changes in prices of goods and services typically purchased by consumers
Producer Price Index (PPI)
A price index measuring the changes in prices of goods and services that firms produce and sell
GDP Deflator
A price index measuring the changes in prices of all new goods and services produced in the economy
Nominal Rate of Interest
The market rate of interest as quoted today (not adjusted for inflation)
Real Rate of Interest
The nominal rate of interest minus the anticipated rate of inflation (adjusted for inflation)
Gross Domestic Product (GDP)
The total market value of all final goods and services produced during the year by resources located within a nation’s brders
Gross Private Domestic Investment (I)
Firm expenditures; Investments undertaken by businesses to add productive capacity
Consumption Expenditure (C)
Household expenditures
Government Expenditures (G)
Goods and services purchased by the government
Nominal GDP
Refers to GDP calculated using the actual market prices at which goods and services are sold
Real GDP
Refers to an adjusted measurement of GDP which is based on the price levels that existed in some Base Period
Economic Growth
Occurs when more of all goods and services can be produced within the economy
Real GDP per capita
It means to measure Real GDP on a per person bias when comparing nations
If savings is channeled into capital investment, _____________________________.
economic growth will occur
Free Trade encourages _________________________.
A more rapid spread of technology and industrial ideas
Open economies experience __________________________________________.
higher rates of economic growth
Agricultural Stage
When most of the population is involved in agriculture
Manufacturing Stage
When much of the population becomes involved in the industrialized sector of the economy
Services Stage
Activities where people offer their knowledge and time to improve productivity, performance, potential, and sustanability
What is the size of our economy?
$19 trillion
What is the size of our national debt?
$20 trillion
How much does our government spend each year?
$3.9 trillion
How much does the government receive from taxes?
$3.3 trillion
What is the size of our annual deficit?
$0.6 trillion
What is the level of unemployment?
$4.7-4.8%
Categories: Macroeconomics