Economics Chapter: Inflation and Unemployment

An interest rate that can change over time. It can go up or down, depending on factors like the overall market interest rates.

A fixed rate stays the same for the entire loan term. It provides predictability and helps in budgeting, but might not be as beneficial if interest rates go down in the future.

Lending practices that charge extremely high interest rates and fees, often trapping borrowers in a cycle of debt. They target vulnerable individuals with limited options.

A loan with high interest rates and strict terms, often targeting people in urgent need of cash. They can lead to overwhelming debt compared to the initially borrowed amount.

The amount charged for borrowing money, usually expressed as a percentage of the principal amount.

The total amount owed on a loan, including principal and interest.

A maximum annual interest rate allowed by law for certain types of loans. This helps protect borrowers from extremely high interest rates

Calculating interest only on the initial principal borrowed. It's a simple way to determine interest cost, commonly used for short-term loans.

Measures the total value of goods and services produced by a country's residents, regardless of their location.

A composite index that considers not just economic output, but also education, health, and quality of life.

A sustained increase in the general price level of goods and services, leading to a decrease in the purchasing power of money.

When the demand for goods and services exceeds the supply, pushing prices higher.

A situation where people who are willing and able to work cannot find jobs.

Short-term unemployment while individuals transition between jobs.

Unemployment caused by structural changes in the economy, such as technological advancements or skill mismatches.

Unemployment caused by a decline in economic activity, usually during a recession.

The idea that lower unemployment rates lead to higher inflation due to increased demand, higher wages, and increased production costs. This relationship is represented by a downward-sloping curve on a graph with inflation on the Y-axis and unemployment on the X-axis.

A situation where both inflation and unemployment are high at the same time. This challenged the traditional Phillips Curve theory by showing that the relationship between inflation and unemployment can be unstable.

The economic cycle that moves through four phases: expansion, peak, contraction (recession), and trough. The timing and length of each phase can vary, but businesses and governments need to understand these phases to make informed decisions.

The phase of the business cycle where economic output grows, companies hire more workers, and unemployment falls.

The phase of the business cycle when the economy reaches its highest point before growth slows down.

The phase of the business cycle when economic output declines, companies produce fewer goods, and unemployment rises, leading to a period of economic contraction. A recession officially begins when the economy shrinks for two consecutive quarters.

The phase of the business cycle when the economy hits its lowest point before growth starts again, marking the beginning of the next expansion.

An unexpected event that disrupts economic growth, often contributing to recessions. Examples include natural disasters, financial crises, or political instability.

A government payment or financial support given to local businesses to help them compete with foreign products.

Taxes on imports that make foreign goods more expensive, helping protect local industries. The increased costs are usually passed onto consumers.

Limits on the amount of a product that can be imported, used to protect domestic industries by controlling the supply of foreign goods.

Agreements between countries to remove tariffs and quotas, making trade easier and cheaper.

Tariffs help industries compete with foreign companies.

Quotas make people buy more from domestic businesses.

Import taxes raise the cost of foreign goods.

They can influence which products are available.

The Fed can raise interest rates to make borrowing more expensive, making people spend less and slowing down the economy. This helps control inflation by reducing the demand for goods and services.

The Fed can lower interest rates, making borrowing cheaper, encouraging people and businesses to spend more and stimulating economic growth.

Fiscal policy refers to the use of government spending and taxes to influence the economy.

Monetary policy refers to the actions taken by a central bank to manage the money supply and interest rates to influence the economy.

Taxes are payments made by individuals and businesses to the government, used to fund public services and programs.

Income tax is a percentage of the money you earn from your job, paid to the government.

Sales tax is a small percentage added to the price of goods and services you buy.

The government uses fiscal policy to stimulate the economy by cutting taxes and increasing spending. This puts more money in people's pockets, boosting demand.

Government policies aimed at ensuring fairness and preventing monopolies in the market.

Government actions to address situations where markets fail to provide necessary public goods or cause harm.

Goods like national defense or streetlights that benefit everyone and can't exclude non-payers.

Government actions to redistribute wealth and reduce income inequality.

Maintaining stable economic conditions by controlling inflation and unemployment.

Government actions to ensure contracts are followed and protect property rights.

Services like schools or roads that have both individual and public benefits.

Challenges that governments face when intervening in the economy, including political influence, inefficiency, and potential for negative consequences.