The resources we use to produce goods and services are limited.
The study of choices when there is scarcity.
Factors of Production
The resources used to produce goods and services; also known as production inputs or resources
Resources provided by nature and used to produce goods and services.
Human effort, including both physical and mental effort, used to produce goods and services.
The stock of equipment, machines, structures, and infrastructure that if used to produce goods and services.
The knowledge and skills acquired by a worker through education and experience and used to produce goods and services.
The effort used to coordinate the factors of production–natural resources, labor, physical capital, and human capital–to produce and sell products.
Answers the question “What is?” or “What will be?”
Answers the question “What ought to be?”
A simplified representation of an economic environment, often employing a graph.
A measure of something that can take on different values.
The Latin expression meaning that the other variables are held fixed.
A small, one-unit change in value.
The study of the nation’s economy as a whole; focuses on the issues of inflation,umemployment, and economic growth.
The study of choices made by households, firms, and government and how these choices affect the markets for goods and services.
A relationship in which two variables move in the same direction.
A relationship in which two variables move in the opposite direction.
Slope of a Curve
The vertical difference between the two points (the rise) divided by the horizontal difference (the run).
What you sacrifice to get something.
Production Possibilities Curve
A curve that shows the possible combinations of products that an economy can produce, given that its productive resources are fully employed and efficiently used.
The additional benefit resulting from a small increase in some activity.
The additional cost resulting from small increase in some activity.
The face value of an amount of money.
The value of an amount of money in terms of what it can buy.
The ability of one person or nation to produce a good at a lower opportunity cost than another person or nation.
The ability of one person or nation to produce a product at a lower resource cost than another person or nation.
A good or service produced in another country and purchased by the residents of the home country.
A good or service produced in the home country and sold in another country.
An economy in which people specialize and exchange goods and services in markets.
Centrally Planned Economy
An economy in which a government bureaucracy decides how much of each product to produce, how to produce the good, and who gets the good.
Perfectly Competitive Market
A market with many sellers and buyers of a homogeneous product and no barriers to entry.
The amount of product that consumers are willing and able to buy.
A table that shows the relationship between the price of a product and the quantity demanded, ceteris paribus.
Individual Demand Curve
A curve that shows the relationship between the price of a good and quantity demanded by an individual consumer, ceteris paribus.
Law of Demand
There is a negative relationship between price and quantity demanded, ceteris paribus.
Change in Quantity Demanded
A change in the quantity consumers are willing and able to buy when the price changes; represented graphically by the movement along the demand curve.
Market Demand Curve
A curve showing the relationship between price and quantity demanded by all consumers, ceteris paribus.
The amount of product that firms are willing and able to sell.
A table that shows the relationship between the price of a product and a quantity supplied, ceteris paribus.
Individual Supply Curve
A curve showing the relationship between price and quantity supplied by a single firm, ceteris paribus.
Law of Supply
There is a positive relationship between price and quantity supplied, ceteris paribus.
Change in Quantity Supplied
A change in the quantity firms are willing and able to sell when the price changes; represented graphically by movement along the supply curve.
Minimum Supply Price
The lowest price at which a product will be supplied.
Market Supply Curve
A curve showing the relationship between the market price and quantity supplied by all firms, ceterid paribus.
A situation in which the quantity demanded equals the quantity supplied at the prevailing market price.
A situation in which, at the prevailing price, the quantity demanded exceeds the quantity supplied.
A situation in which the quantity supplied exceeds the quantity demanded at the prevailing price.
Change in Demand
A shift of the demand curve caused by a change in a variable other than the price of the poduct.
A good for which an increase in income increases demand.
A good for which an increase in income decreases demand.
Two goods for which an increase in the price of one good increases the demand for the other good.
Two goods for which a decrease in the price of one good increases the demand for the other good.
Change in Supply
A shift of the supply curve caused by a change in a variable other than the price of the product.
Sustained increases in the prices of all goods.
Gross Domestic Product (GDP)
The total market value of final goods and services produced within an economy in a given year.
Goods used in the production process that are not final goods and services.
A measure of GDP that controls for changes in prices.
The value of GDP in current dollars.
Sustained increases in the real GDP of an economy over a long period of time.
Purchases of newly produced goods and services by households.
Private Investment Expenditures
Purchases of newly produced goods and services by firms.
Total new investment expenditures.
Reduction in the value of capital goods over a one-year period due to physical wear and tear and also to obsolescence; also called capital consumption allowance.
Gross investment minus depreciation.
Purchases of newly produces goods and services by local, state, and federal governments.
Payments from government to individuals that do not correspond to the production of goods and services.
Exports minus imports.
The excess of imports over exports.
The excess of exports over imports.
The total income earned by a nation’s residents both domestically and abroad in the production of goods and services.
Gross National Product
GDP plus net income earned abroad.
Income, including transfer payments, received by households.
Personal Disposable Income
Personal income that households retain after paying income taxes.
The sum of all the income–wages, interest. profits, and rent– generated by an organization. For a firm, we can measure the value added by the dollar value of the firm’s sales minus the dollar value of the goods and services purchased from other firms.
An index that measures how the prices of goods and services included in the GDP change over time.
A method for calculating changes in prices that uses and average of base years from neighboring years.
Commonly defined as six consecutive months of declining real GDP.
The date at which the recession starts.
The date at which the output stops falling in a recession.
The period after a trough in a business cycle during which the economy recovers.
The common name for a severe recession.
The total number of workers, both the employed and the unemployed.
The percentage of the labor force that is unemployed.
Labor Force Participation Rate
The percentage of the population over 16 years of age that is in the labor force.
Worker who left the labor force because they could not find jobs.
The component umemployment attributed to seasonal factors.
Unemployment thar occurs during flucuations in real GDP.
Unemployment that occurs with the normal workings of the economy, such as workers taking time to search for suitable jobs and firms taking time to search for qualified workers.
Umemployment that occurs when there is a mismatch of skills and jobs.
Natural Rate of Unemployment
The level of unemployment at which there is no cyclical unemployment. It consists of only frictional and structural umemployment.
The level of umemployment that occurs when the umemployment rate is a the natural rate.
Payments unemployed people receive from the government.
Consumer Price Index
A price index that measures the cost of a fixed basket of goods chosen to represent the consumption pattern of a typical consumer.
Automatic increases in wages ot other payments that are tied to the CPI.
The percentage rate of change in the price level.
Negative inflation or falling prices of goods and services.
Inflation that is expected.
Inflation that is not expected.
The costs associated with changing prices and printing new price lists when there is inflation.
Cost of inflation that arrives from trying to reduce holdings of cash.
An inflation rate exceeding 50 percent per month.
Economic models that assume wages and prices adjust freely to changes in demand and supply.
The relationship between the level of output of a good and the factors of production that are inputs to production.
Stock of Capital
The total of all machines, equipment, and buildings in an entire economy.
The wage rate paid to employees adjusted for changes in the price level.
The level of output that results when the labor market is in equilibrium and the economy is producing at full employment.
Real Business Cycle Theory
The economic theory that emphasizes how shocks to technology can cause fluctuations in economic activity.
The reduction in investment (or other component of GDP) caused by an increase in government spending.
An economy without international trade.
An economy with international trade.
The increase of investment (or other component of GDP) caused by a decrease in government spending.
Increases in the stock of capital per worker.
More efficient ways of organizing economic affairs that allow an economy to increase output without increasing inputs.
Real GDP Per Capita
Gross domestic product per person adjusted for changes in prices. It is the usual measure of living standards across time and among countries.
The percentage rate of change of a variable from one period to another.
Rule of 70
A rule of thumb that says output will double in 70/x years, where x is the percentage rate of growth.
The process by which poorer countries close the gap with richer countries in terms of real GDP per capita.
Income that is not consumed.
A method to determine the contribution to economic growth from increased capital, labor, and technological progress.
The view that a firm will try to come up with new products and more efficient ways to produce products to earn monopoly profits.
New Growth Theory
Modern theories of growth that try to explain the origins of technological progress.
Short Run in Macroeconomics
The period of time in which prices do not change or do not change very much.
Aggregate Demand Curve (AD)
A curve that shows the relationship between the level of prices and the quantity of real GDP demanded.
The increase in spending that occurs because the real value of money increases when the price level falls.
The ratio of the total shift in aggregate demand to the initial shift in aggregate demand.
The relationship between consumption spending and the level of income.
Autonomous Consumption Spending
The part of consumption spending that does not depend on income.
Marginal Propensity to Consume (MPC)
The fraction of additional income that is spent.
Marginal Propensity to Save (MPS)
The fraction of additional income that is saved.
Aggregate Supply Curve (AS)
A curve that shows the relationship between the level of prices and the quantity of output supplied.
Long-run Aggregate Supply Curve
A vertical aggregate supply curve that reflects the idea the in the long run, output is determined solely by the factors of production and technology.
Short-run Aggregate Supply Curve
A relatively flat aggregate supply curve the represents the idea that prices do not change very much in the short run and that firms adjust production to meet demand.
External events that shift the aggregate supply curve.
A decrease in real output with increasing prices.
Changes in government taxes and spending that affect the level of GDP.
Government policy actions that lead to increases in aggregate demand.
Government policy actions that lead to decreases in aggregate demand.
Policy actions taken to move the economy closer to full employment or potential output.
The time it takes to formulate a policy.
The time it takes for the policy to actually work.
The spending programs that Congress authorizes on an annual basis.
Entitlement and Mandatory Spending
Spending that Congress has authorized by prior law, primarily providing support for individuals.
A federal government program to provide retirement support and a host of other benefits.
A federal government health program for the elderly.
A federal and state government program for the poor.
A school of thought that emphasizes the role that taxes play in the supply of output in the economy.
A relationship between the tax rates and tax revenue that illustrates that high tax rates could lead to lower tax revenues is economic activity is severely discouraged.
The amount by which government spending exceeds revenues in a given year.
The amount by which government revenues exceed government expenditures in a given year.
Taxes and transfer payments that stabilize GDP without requiring policymakers to take explicit action.
An estimate of a household’s long-run average level of income.