Macroeconomics Chapters 6-9
Adjustable-rate mortgage (ARM)
A mortgage (home loan) that adjusts the nominal interest rate to changing rates of inflation.
The total quantity of output (real GDP) demanded at alternative price levels in a given time period, ceteris paribus.
The total quantity of output (real GDP) producers are willing and able to supply at alternative price levels in a given time period, ceteris paribus.
Consumer spending not dependent on current income.
Average propensity to consume (APC)
Total consumption in a given period divided by total disposable income.
The year used for comparative analysis; the basis for indexing price changes.
The movement of taxpayers into higher tax brackets (rates) as nominal incomes grow.
Alternating periods of economic growth and contraction.
Consumer Price Index (CPI)
A measure (index) of changes in the average price of consumer goods and services.
Expenditure by consumers on final goods and services.
A mathematical relationship indicating the rate of desired consumer spending at various income levels.
Core inflation rate
Changes in the CPI, excluding food and energy prices.
Cost-of-living adjustment (COLA)
Automatic adjustments of nominal income to the rate of inflation.
Unemployment attributable to a lack of job vacancies—that is, to an inadequate level of aggregate demand.
A decrease in the average level of prices of goods and services.
An increase in the price level initiated by excessive aggregate demand.
An individual who isn’t actively seeking employment but would look for or accept a job if one were available.
After-tax income of households; personal income less personal taxes.
Consumption expenditure in excess of disposable income; a negative saving flow.
The combination of price level and real output that is compatible with both aggregate demand and aggregate supply.
The value of total output (real GDP) produced at macro equilibrium (AS = AD).
The use of government taxes and spending to alter macroeconomic outcomes.
Brief periods of unemployment experienced by people moving between jobs or into the labor market.
The lowest rate of unemployment compatible with price stability, variously estimated at between 4 percent and 6 percent unemployment.
The value of total market output (real GDP) produced at full employment.
A price index that refers to all goods and services included in GDP.
A period during which real GDP grows but at a rate below the long-term trend of 3 percent.
Inflation rate in excess of 200 percent, lasting at least one year.
An increase in the average level of prices of goods and services.
The annual percentage rate of increase in the average price level.
The rate of output at which inflationary pressures intensify; the point on the AS curve where slope increases sharply.
Inflationary GDP gap
The amount by which equilibrium GDP exceeds full-employment GDP.
Expenditures on (production of) new plants, equipment, and structures (capital) in a given time period, plus changes in business inventories.
The percentage of total expenditure spent on a specific product; used to compute inflation indexes.
All persons over age 16 who are either working for pay or actively seeking paid employment.
Labor force participation rate
The percentage of the working-age population working or seeking employment.
The doctrine of “leave it alone,” of nonintervention by government in the market mechanism.
Law of demand
The quantity of a good demanded in a given time period increases as its price falls, ceteris paribus.
The study of aggregate economic behavior, of the economy as a whole.
Marginal propensity to consume (MPC)
The fraction of each additional (marginal) dollar of disposable income spent on consumption; the change in consumption divided by the change in disposable income.
Marginal propensity to save (MPS)
The fraction of each additional (marginal) dollar of disposable income not spent on consumption; 1 − MPC.
The use of money and credit controls to influence macroeconomic outcomes.
The use of nominal dollars rather than real dollars to gauge changes in one’s income or wealth.
Natural rate of unemployment
The long-term rate of unemployment determined by structural forces in labor and product markets.
The value of final output produced in a given period, measured in the prices of that period (current prices).
The amount of money income received in a given time period, measured in current dollars.
One percent more unemployment is estimated to equal 2 percent less output.
The relocation of production to foreign countries.
The absence of significant changes in the average price level; officially defined as a rate of inflation of less than 3 percent.
The alternative combinations of final goods and services that could be produced in a given period with all available resources and technology.
The value of final output produced in a given period, adjusted for changing prices.
Income in constant dollars; nominal income adjusted for inflation.
Real interest rate
The nominal interest rate minus the anticipated inflation rate.
A decline in total output (real GDP) for two or more consecutive quarters.
Recessionary GDP gap
The amount by which aggregate spending at full employment falls short of full-employment output.
The price of one good in comparison with the price of other goods.
That part of disposable income not spent on current consumption; disposable income less consumption.
Supply creates its own demand.
Unemployment due to seasonal changes in employment or labor supply.
Unemployment caused by a mismatch between the skills (or location) of job seekers and the requirements (or location) of available jobs.
The use of tax incentives, (de) regulation, and other mechanisms to increase the ability and willingness to produce goods and services.
People seeking full-time paid employment that work only part-time or are employed at jobs below their capability.
The inability of labor force participants to find jobs.
The proportion of the labor force that is unemployed.
A change in consumer spending caused by a change in the value of owned assets.