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Flashcards in Chapter 8 Deck (32)
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1
Q

per-unit production cost

A

A cost incurred by a business when manufacturing a good or producing a service. Production costs combine raw material and labor. To figure out the cost of production per unit, the cost of production is divided by the number of units produced. A company that knows how much it will cost to produce an item, or produce a service, will have a clearer picture of how to better price the item or service and what will be the total cost to the company

2
Q

Frictional Unemployment

A

Unemployment that is always present in the economy, resulting from temporary transitions made by workers and employers or from workers and employers having inconsistent or incomplete information.

3
Q

economic growth

A

An increase in the capacity of an economy to produce goods and services, compared from one period of time to another. For comparing one country’s economic growth to another, GDP or GNP per capita should be used as these take into account population differences between countries.

4
Q

rule of 70

A

A way to estimate the number of years it takes for a certain variable to double. The rule of 70 states that in order to estimate the number of years for a variable to double, take the number 70 and divide it by the growth rate of the variable.

5
Q

productivity

A

An economic measure of output per unit of input, typically measured in revenues and other GDP components such as business inventories.

6
Q

business cycle

A

The fluctuations in economic activity that an economy experiences over a period of time. A business cycle is basically defined in terms of periods of expansion or recession.

7
Q

peak

A

The highest point between the end of an economic expansion and the start of a contraction in a business cycle. The peak of the cycle refers to the last month before several key economic indicators, such as employment and new housing starts, begin to fall. It is at this point that real GDP spending in an economy is its highest level.

8
Q

recession

A

A significant decline in activity across the economy, lasting longer than a few months. The technical indicator of a recession is two consecutive quarters of negative economic growth as measured by a country’s GDP.

9
Q

trough

A

The stage of the economy’s business cycle that marks the end of a period of declining business activity and the transition to expansion.

10
Q

recovery

A

A period of increasing business activity signaling the end of a recession. Economists use a variety of indicators, including GDP, inflation, financial markets and unemployment to analyze the state of the economy and determine whether a recovery is in progress.

11
Q

labor force

A

A term used by the U.S. Bureau of Labor Statistics (BLS) to describe the subset of Americans who have jobs or are seeking a job, are at least 16 years old, are not serving in the military and are not institutionalized.

12
Q

unemployment rate

A

The percentage of the total labor force that is unemployed but actively seeking employment and willing to work.

13
Q

discouraged workers

A

A person who is eligible for employment and is able to work, but is currently unemployed and has not attempted to find employment in the last four weeks. Discouraged workers have usually given up on searching for a job because they found no suitable employment options and/or were met with lack of success when applying. Since discouraged workers are no longer looking for employment, they are not counted as active in the labor force. This means that unemployment rates, which are based on labor force calculations, do not consider discouraged workers.

14
Q

Structural Unemployment

A

A longer-lasting form of unemployment caused by fundamental shifts in an economy. Can occur because workers lack the requisite job skills, or they may live far from regions where jobs are available but are unable to move there, or they may simply be unwilling to work because existing wage levels are too low.

15
Q

Cyclical Unemployment

A

A factor of overall unemployment that relates to the cyclical trends in growth and production that occur within the business cycle. When business cycles are at their peak, cyclical unemployment will be low because total economic output is being maximized. When economic output falls, as measured by the gross domestic product (GDP), the business cycle is low and cyclical unemployment will rise.

16
Q

Full Employment Rate of Unemployment

A

When the economy is said to be at full employment, it is at its natural rate of unemployment.

17
Q

Natural Rate of Unemployment

A

The lowest rate of unemployment that an economy can sustain over the long run. (4-5%)

18
Q

Potential Output

A

The highest level of real GDP that can be sustained over the long term.

19
Q

GDP Gap

A

The forfeited output of a country’s economy resulting from the failure to create sufficient jobs for all those willing to work.

20
Q

Okun’s Law

A

The relationship between an economy’s unemployment rate and its gross national product (GNP). Twentieth-century economist Arthur Okun developed this idea, which states that when unemployment falls by 1%, GNP rises by 3%. Also states a percentage increase in unemployment causes a 2% fall in GDP.

21
Q

Inflation

A

The rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling.

22
Q

Demand Pull Inflation

A

Occurs when price levels rise because of an imbalance in the aggregate supply and demand. When the aggregate demand in an economy strongly outweighs the aggregate supply, prices increase.

23
Q

Cost Push Inflation

A

A phenomenon in which the general price levels rise due to increases in the cost of wages and raw materials.

24
Q

nominal income

A

income of an individual or group without taking into account the effects of inflation.

25
Q

real income

A

The income of an individual or group after taking into consideration the effects of inflation on purchasing power. For example, if you received a 2% salary rise over the previous year and inflation for the year was 1%, then your real income only rose 1%. Conversely, if you received a 2% raise in salary and inflation stood at 3%, then your real income would have shrunk 1%.

26
Q

anticipated inflation

A

The percentage increase in the level of prices over a given period that is expected by participants in an economy. For example, the level of anticipated inflation can affect how an individual invests their savings, how a business sets its prices, and the interest rates at which banks lend money.

27
Q

unanticipated inflation

A

When inflation is unanticipated, individuals do not realize that they should protect
their real purchasing power against a rising price level until the price level has already risen and their real
purchasing power has already fallen.

28
Q

cost-of-living-adjustments (COLAs)

A

An adjustment made to Social Security and supplemental security income in order to adjust benefits to counteract the effects of inflation. COLAs are generally equal to the percentage increase in the consumer price index for urban wage earners and clerical workers (CPI-W) for a specific period.

29
Q

real interest ratte

A

An interest rate that has been adjusted to remove the effects of inflation to reflect the real cost of funds to the borrower, and the real yield to the lender. The real interest rate of an investment is calculated as the amount by which the nominal interest rate is higher than the inflation rate.

Real Interest Rate = Nominal Interest Rate - Inflation (Expected or Actual)

30
Q

nominal Interest rate

A

The interest rate before taking inflation into account. The nominal interest rate is the rate quoted in loan and deposit agreements. The equation that links nominal and real interest rates is:
(1 + nominal rate) = (1 + real interest rate) (1 + inflation rate).
It can be approximated as nominal rate = real interest rate + inflation rate.

31
Q

deflation

A

general decline in prices. often caused by a reduction in the supply of money or credit.

32
Q

hyperinflation

A

extremely rapid or out of control inflation