Economics Vocabulary Section I

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All major currencies today are in the form of this.

Fiat Money

I need to cut back on my spending each month, because I am planning to purchase a house. And I also need to think about how I will pay for my child's college tuition in a few years. What kind of saving is this?

Life-Cycle Savings

This form of fiscal policy has a greater impact per dollar than other fiscal policy measures.

Direct Fiscal Policy

AIG sold insurance policies on ______, which then put the company in a dangerous position when the housing bubble burst.

Subprime Mortgages Signup and view all the answers

If investment spending in a country were to exceed its national savings in a given year, we know that ______ would be negative for that year.

Net Capital Inflow Signup and view all the answers

This measure reflects the amount of public savings in an economy.

Budget Balance Signup and view all the answers

When aggregate prices increase, the purchasing power of certain assets (e.g. currency funds held in time deposits, funds held in savings accounts, etc.) decreases. When this happens, autonomous consumption spending decreases. What is this called?

Deflation Signup and view all the answers

Increases in this would lead to increases in productivity, increases in Yp and increases in SRAS.

Human Capital Signup and view all the answers

The flour I purchase is for use in my bakery, rather than for personal use. What kind of good is this?

Intermediate Good Signup and view all the answers

The decline in lending standards can be seen in part by the large number of ______ issued.

Subprime Mortgages Signup and view all the answers

This can be caused by things such as minimum wages, labor unions and efficiency wages.

Frictional Unemployment Signup and view all the answers

These were created due to the "mainstreet" vs. "wallstreet" divide

Regional Federal Reserve Banks Signup and view all the answers

This can be used to "deflate" nominal values so they are comparable from year to year.

CPI Signup and view all the answers

Suppose that the population of individuals aged 16 and over is 4 million, the number of individuals officially counted as unemployed is 0.3 million, and the labor-force participation rate is 75%. What is the unemployment rate?

7.5% Signup and view all the answers

Suppose the CPI in 2020 is 250, and the CPI in 2021 is 240. a) What is the inflation rate between 2020 and 2021? Based on this information, what is the economy experiencing over this time period?

Inflation rate: -4% The economy is experiencing deflation. Signup and view all the answers

Suppose you are considering taking out a loan, and the nominal interest rate is 5%. Assuming the inflation rate remains stable at the rate calculated in a), what is the real interest rate on the loan?

9% Signup and view all the answers

Suppose the average price of a medium pizza in 2020 is $10, and the average price of a pizza in 2021 is $9.75. Compare these prices in real terms. Are pizza lovers better or worse off in 2021?

Pizza lovers are worse off in 2021. Signup and view all the answers

A logging company (owned and operated in the U.S.) harvested 2 million MBF of timber in 2020. That same year, the logging company sold 1 million MBF to a saw mill located in the U.S., at the market price of $300 per MBF. The rest of the timber went unsold that year. Suppose the saw mill used all of the timber purchased in 2020 to produce lumber. It sold half of the lumber to the government, and half to a construction company for use in various projects that were not completed in 2020. The total market value of the timber sold was $400 Million. Using the expenditure approach, calculate the total impact on 2020 U.S. GDP that resulted from these specific events. Explicitly show the effect on each expenditure category: C, I, G, NX.

C $0 I $300M (investment made by the saw mill) G $200M (government spending on lumber) NX $0 Total impact: $500M Signup and view all the answers

Suppose the current level of real GDP in the economy is $25 trillion, however experts estimate that potential output is $20 trillion. a) Is this a long-run or a short-run situation?

Short-run Signup and view all the answers

Suppose the current level of real GDP in the economy is $25 trillion, however experts estimate that potential output is $20 trillion. b) Calculate the output gap (calculate this as a percentage of potential real GDP, as shown in class). Is this an expansionary or recessionary gap?

Output Gap: ((25-20)/20) * 100 = 25% Expansionary Signup and view all the answers

Suppose the marginal propensity to consume is 0.8. Further suppose the SRAS is perfectly elastic, there are no transfer payments, and income taxes are collected at a tax rate of 25%. By how much would the government need to change its spending to close the output gap using direct methods?

Government spending should be reduced by $4 trillion. Signup and view all the answers

An influential group of individuals opposes the idea of closing the output gap. Instead, the group is advocating that the government should do everything it can to maintain this high level of GDP through fiscal policy. What fiscal policy tools could be used to support this high level of GDP? (Provide a complete list, and be specific about whether each would increase or decrease)

Increase Government Spending Signup and view all the answers

An influential group of individuals opposes the idea of closing the output gap. Instead, the group is advocating that the government should do everything it can to maintain this high level of GDP through fiscal policy. What arguments could you provide for why this would be a bad idea? (Be sure to give at least two sound arguments.)

Sustained high levels of output above potential output could lead to inflation in the long run. Signup and view all the answers

Suppose that the government has decided that fiscal policy action in any form is not appropriate. Instead, the Federal Reserve has decided to take monetary action to close the output gap. How should the Fed adjust its target Federal Funds rate to accomplish this? (Should the target be higher or lower than the current rate?)

The Fed should lower the target Federal Funds rate. Signup and view all the answers

Explain how a change in interest rates would affect the economy, and would help close the output gap.

Lowering interest rates would encourage borrowing and investment, leading to increased spending, and therefore an increase in aggregate demand in the economy. As a result, the economy would move closer to its potential output. Signup and view all the answers

Consider the following actions and categorize them as one of the following: A. Appropriate for the Fed to take under the old (scarce reserve) framework B. Appropriate for the Fed to take under the new (ample reserve) framework C. Inappropriate for the Fed to take given the current economic conditions D. Impossible for the Fed to take i. Increase monetary base ii. Decrease monetary base iii. Increase IORB iv. Decrease IORB v. Increase taxes iv. Decrease taxes

Increase monetary base = A Decrease monetary base = A Increase IORB = B Decrease IORB = B Increase taxes = C Decrease taxes = C Signup and view all the answers

Suppose the reserve requirement for banks is 10%, banks maintain zero excess reserves, and individuals put all of their funds into checkable deposits. By how much will the Fed need to change the monetary base if it wants to change the money supply by $200 billion? (Either + or - depending on what would move the economy in the correct direction.)

The Fed needs to increase the monetary base by $20 billion. Signup and view all the answers

Assume the Fed conducts all of its open-market operations with the bank shown below. On both balance sheets, write the debits and credits that would result from the open-market operation required to accomplish the desired change specified in h).

Bank's Balance Sheet: Assets: <ul> <li>$20 Billion Treasury Bills Liabilities:</li> <li>$20 Billion Deposits</li> </ul> Fed's Balance Sheet: Assets: <ul> <li>$20 Billion Treasury Bills Liabilities:</li> <li>$20 Billion Monetary Base</li> </ul> Signup and view all the answers

Calculate this bank's reserve ratio and state whether or not it has excess reserves (calculate after the open-market operation). Use this to discuss the process by which this operation leads to a change in the money supply of the desired amount.

Reserve ratio: 10% Excess Reserves: No The monetary base increase of $20 billion leads to $200 billion expansion in the money supply due to the multiplier effect. Signup and view all the answers

Calculate the bank's capital. Given that T-Bills are a type of bond, what would happen to the value of capital held by this bank if both the inflation rate and interest rates increased?

The bank's capital would decrease. Signup and view all the answers

Suppose you are considering investing in a machine that will cost you $20,000, can be resold at the end of the year for $15,000, and will provide $6,000 in revenues for the year. For simplicity, assume that all revenues are realized at the end of the year. At what interest rate would you be indifferent between making the investment or not?

15% Signup and view all the answers

Would your answer to part a) change if you instead kept the machine for two years, sold it at the end of the second year for $15,000, and received $3,000 in revenues at the end of each of the two years? If so, would the interest rate be higher or lower?

Yes, the interest rate at which you would be indifferent would be lower. Signup and view all the answers

Through research, you have found that the marginal propensity to save in your country is 0.1, and the current level of autonomous consumption is $70 billion. You have also found that planned investment spending in your country is $60 billion, government expenditures are $50 billion, and net exports are zero. (Assume no taxes.) Solve algebraically for the Income-Expenditure equilibrium level of real GDP.

Real GDP = $700 Billion Signup and view all the answers

Through research, you have found that the marginal propensity to save in your country is 0.1, and the current level of autonomous consumption is $70 billion. You have also found that planned investment spending in your country is $60 billion, government expenditures are $50 billion, and net exports are zero. (Assume no taxes.) Illustrate this equilibrium using a Keynesian cross diagram. Label fully.

See the diagram attached Signup and view all the answers

Long-run economic growth is one of the overarching macroeconomic goals discussed throughout the semester. How do economists traditionally measure long-run economic growth?

Economists traditionally measure long-run economic growth as the percentage change in real GDP per capita over a period of time, typically a year or more. Signup and view all the answers

Long-run economic growth is one of the overarching macroeconomic goals discussed throughout the semester. What are two of the main factors discussed in class that contribute to increases in average labor productivity, and hence economic growth?

Two key factors that contribute to increases in labor productivity are: (1) Technological advancements and (2) Human capital investment. Signup and view all the answers

Long-run economic growth is one of the overarching macroeconomic goals discussed throughout the semester. In what ways might the traditional measure of economic growth be lacking or misleading? Provide two sound arguments.

<ol> <li>Neglect of environmental sustainability and resource depletion.</li> <li>The traditional measure ignores the distribution of income and wealth.</li> </ol> Signup and view all the answers

Long-run economic growth is one of the overarching macroeconomic goals discussed throughout the semester. What is natural capital accounting, and what does it seek to accomplish? How does this relate to arguments made in the global community against solely looking at the traditional measure of economic growth?

Natural capital accounting involves measuring the value of natural resources and ecosystems, such as forests, oceans, and air. This type of accounting seeks to integrate the value of natural capital into national economic accounts, providing a more comprehensive picture of the economy's true wealth and sustainability. The global community is increasingly concerned about the limitations of solely relying on traditional measures of GDP, which often fail to capture the value of natural capital and the importance of environmental sustainability. Natural capital accounting helps to address these concerns by providing a framework for understanding the relationship between the economy and the environment. Signup and view all the answers

Translate the following statements into elements of the Income-Expenditure model and use the model to evaluate the effects: "Declining house prices discourage new construction." "More generally, sharp declines in house prices make consumers feel poorer, and thus less willing to spend."

Declining house prices decrease investment spending (I) in the Income-Expenditure model. This leads to a decrease in aggregate demand, which in turn decreases real GDP. The latter statement indicates a decrease in autonomous consumption (C) due to the wealth effect. This decrease in C reduces aggregate demand, which further decreases Real GDP. Signup and view all the answers

A key trigger of the financial crisis of 2008 was the burst of the housing bubble and the associated mortgage losses. Explain what is meant by an asset "bubble".

An asset bubble occurs when the price of an asset, such as housing, rises rapidly and significantly above its fundamental value, driven by speculative buying and irrational exuberance. Over time, people often buy the asset not based on its real value but with hopes that it will continue to rise in price, leading to increased demand and even higher prices. Signup and view all the answers

A key trigger of the financial crisis of 2008 was the burst of the housing bubble and the associated mortgage losses. How did the decline in lending standards contribute to the housing bubble?

Declining lending standards contributed to the housing bubble by making it easier for people with poor credit histories to obtain mortgages. This led to a surge in demand for housing, further driving up prices. Lenders were willing to lend more freely, even to borrowers with questionable creditworthiness, driven by the belief that housing prices would continue to rise. As a result, more people were able to purchase homes, leading to a boom in the housing market. Signup and view all the answers

A key trigger of the financial crisis of 2008 was the burst of the housing bubble and the associated mortgage losses. Why did the decline in housing prices cause borrowers to default on their mortgages? (Hence leading to the mortgage losses?)

When housing prices declined, many homeowners found themselves in a situation where their mortgage debt exceeded the value of their home (negative equity). This situation made it difficult for homeowners to sell their house and pay off their debt, leading them to default on their mortgages. Lenders, in turn, suffered significant losses as they were unable to recover the full value of the mortgages from distressed homeowners. Signup and view all the answers

A key trigger of the financial crisis of 2008 was the burst of the housing bubble and the associated mortgage losses. Why did the decline in the housing prices ultimately have a much more severe impact on the economy than the decline in dot-com stock prices had in the early 2000's? Link your answer to at least two distinct vulnerabilities (either in the public or private sector) that Bernanke discussed.

The decline in housing prices had a more severe impact on the economy due to a combination of vulnerabilities: 1) The widespread nature of mortgage lending and the interconnectedness of financial institutions. 2) The use of complex financial instruments, such as mortgage-backed securities, which amplified the impact of individual defaults, spreading the risk across the financial system. Signup and view all the answers

What two main factors contribute to increases in average labor productivity?

Technological advancements and improved education and skills of the workforce contribute to increases in average labor productivity. Signup and view all the answers

In what two ways might traditional measures of economic growth be misleading?

They may overlook income inequality and fail to account for environmental degradation. Signup and view all the answers

What does natural capital accounting seek to accomplish?

Natural capital accounting seeks to measure and value natural resources and ecosystems to incorporate them into economic decision-making. Signup and view all the answers

Explain what is meant by an asset 'bubble' in the context of an economy.

An asset 'bubble' occurs when the prices of assets rise significantly above their intrinsic value, driven by high demand and speculation. Signup and view all the answers

How did declining lending standards contribute to the housing bubble?

Declining lending standards allowed more individuals to obtain mortgages, often without adequate financial assessment, fueling excessive demand and speculation in housing. Signup and view all the answers

Why did the decline in housing prices lead to mortgage defaults?

As housing prices fell, many borrowers owed more on their mortgages than their homes were worth, leading to defaults when they could no longer make payments. Signup and view all the answers

What primary goal does diversification aim to achieve in investment portfolios?

The primary goal of diversification is to reduce risk by spreading investments across various assets that are not closely correlated. Signup and view all the answers

What is the relationship between house prices and consumer spending, according to the Income-Expenditure model?

Declining house prices can lead to reduced consumer confidence, making individuals feel poorer and less willing to spend. Signup and view all the answers

What is the main consequence of autonomous consumption spending decreasing due to increased aggregate prices?

The main consequence is a reduction in overall consumer spending, which can negatively impact economic growth. Signup and view all the answers

What were the consequences of AIG selling insurance policies on subprime mortgages when the housing market collapsed?

AIG faced significant financial losses and required a government bailout as they could not cover the claims from defaulted loans. Signup and view all the answers

How does an increase in productivity generally affect short-run aggregate supply (SRAS)?

An increase in productivity usually shifts the SRAS curve to the right, leading to higher output and lower prices. Signup and view all the answers

What might be two factors influencing long-run economic growth besides capital investment?

Labor force growth and technological innovations are two significant factors contributing to long-run economic growth. Signup and view all the answers

Explain the concept of an 'output gap' in an economy?

An output gap represents the difference between actual real GDP and potential GDP, indicating either economic over-performance or under-performance. Signup and view all the answers

What impact does an increase in interest rates typically have on consumer spending?

Higher interest rates generally lead to decreased consumer spending as borrowing costs rise, making loans and credit less attractive. Signup and view all the answers

What role does natural capital accounting play in traditional economic growth measures?

Natural capital accounting quantifies the value of natural resources and ecosystems, aiming to provide a more comprehensive view of economic sustainability. Signup and view all the answers

In terms of public savings, what identifies a country experiencing a budget surplus?

A government is experiencing a budget surplus when its revenues exceed its expenditures in a given fiscal year. Signup and view all the answers

Calculate the impact on 2020 U.S. GDP from the timber sold, and categorize the effects on C, I, G, and NX.

The timber sold contributes $400 Million to GDP. It impacts G by $200 Million (government purchase) and I by $200 Million (business investment), while C and NX remain unchanged. Signup and view all the answers

Determine whether the situation of real GDP at $25 trillion versus potential output of $20 trillion is long-run or short-run.

This is a short-run situation since actual GDP exceeds potential output. Signup and view all the answers

What is the output gap in percentage terms of potential real GDP?

The output gap is 25% calculated as (($25 trillion - $20 trillion) / $20 trillion) * 100. Signup and view all the answers

If the marginal propensity to consume is 0.8, calculate the required change in government spending to close the output gap.

Government spending needs to increase by $1 trillion to close the output gap, calculated using the multiplier effect. Signup and view all the answers

List at least three fiscal policy tools to maintain a high level of GDP and indicate their effect.

Fiscal tools include increasing government spending (increase), cutting taxes (increase), and expanding subsidies (increase). Signup and view all the answers

What monetary action should the Federal Reserve take to close the output gap?

The Fed should lower its target Federal Funds rate to stimulate borrowing and investment. Signup and view all the answers

Explain how a change in interest rates can affect the economy in closing the output gap.

Lower interest rates reduce borrowing costs, which increases consumer spending and business investment, aiding in closing the output gap. Signup and view all the answers

Given the reserve requirement of 10%, calculate how much the Fed needs to adjust the monetary base to change the money supply by $200 billion.

The Fed needs to increase the monetary base by $20 billion, calculated as $200 billion / (1 - 0.10). Signup and view all the answers

How much will the Fed need to change the monetary base if it wants to change the money supply by $200 billion, given a reserve requirement of 10%?

The Fed will need to increase the monetary base by $20 billion to achieve a $200 billion increase in the money supply. Signup and view all the answers

What debits and credits would result from the Fed's open-market operation to accomplish the monetary base change described in the previous question?

The Fed's balance sheet would show a debit of $20 billion in assets and a credit of $20 billion to the monetary base. Signup and view all the answers

Calculate the bank's reserve ratio after the open-market operation changes the reserve level.

The reserve ratio will be approximately 11.11% after the operation, indicating the bank has no excess reserves. Signup and view all the answers

What will happen to the bank's capital if both the inflation rate and interest rates increase?

The value of the bank's capital will likely decrease due to increased interest expenses and reduced asset values. Signup and view all the answers

At what interest rate would you be indifferent between investing in a machine costing $20,000 and its future cash flows?

You would be indifferent at an interest rate of 8%, where the present value of future cash flows equals the initial investment. Signup and view all the answers

Would your investment decision change if the machine provided lower revenue over two years, and how?

Yes, the interest rate at which you would be indifferent would decrease, as more cash inflows spread over time reduce risk. Signup and view all the answers

What is the income-expenditure equilibrium level of real GDP given the marginal propensity to save and other inputs?

The equilibrium level of real GDP is $700 billion, based on total autonomous consumption and planned investment. Signup and view all the answers

How do economists traditionally measure long-run economic growth?

Economists traditionally measure long-run economic growth using real GDP per capita. Signup and view all the answers

What is the significance of the term 'Monetary Base' in relation to the economy?

The 'Monetary Base' refers to the total amount of money created by the central bank, which includes currency in circulation and reserves held by banks. It is significant as it serves as the foundation for the money supply in the economy. Signup and view all the answers

Explain the concept of the 'Crowding Out' effect.

The 'Crowding Out' effect occurs when government borrowing leads to higher interest rates, making it expensive for private investors to borrow. This results in reduced private sector investment. Signup and view all the answers

What role does the 'Discount Rate' play in monetary policy?

The 'Discount Rate' is the interest rate charged by central banks on loans to commercial banks, and it influences overall economic activity by guiding banks' lending behavior. A lower discount rate encourages borrowing and spending, while a higher rate restricts them. Signup and view all the answers

Define 'Potential Output' and its importance in macroeconomics.

'Potential Output' refers to the maximum level of economic activity that an economy can sustain over the long term without inflationary pressures. It is important for assessing economic performance and identifying output gaps. Signup and view all the answers

What does 'Stagflation' refer to in economic terms?

'Stagflation' is a situation where an economy experiences stagnant growth, high unemployment, and high inflation simultaneously. This presents a dilemma for policymakers, as measures to reduce inflation may exacerbate unemployment. Signup and view all the answers

How does 'Fiscal Policy' differ from 'Monetary Policy'?

'Fiscal Policy' involves government spending and tax decisions to influence the economy, whereas 'Monetary Policy' refers to central bank actions that manage the money supply and interest rates. Each policy has different tools and objectives. Signup and view all the answers

Describe the 'Fisher Effect' and its implications for interest rates.

The 'Fisher Effect' asserts that the nominal interest rate is equal to the real interest rate plus expected inflation. This implies that if inflation expectations rise, nominal interest rates will also increase to maintain real yields. Signup and view all the answers

What is 'Precautionary Savings' and why do individuals engage in it?

'Precautionary Savings' are funds that individuals set aside to prepare for uncertain future expenses or emergencies. People engage in this form of saving to safeguard their financial stability against unexpected changes in income or expenses. Signup and view all the answers

Explain the idea of 'Economic Growth' and how it is typically measured.

'Economic Growth' refers to the increase in the production of goods and services in an economy over time, typically measured by changes in real GDP. It indicates improvements in living standards and overall economic health. Signup and view all the answers

What is the 'CPI' and how does it affect economic analysis?

The 'CPI', or Consumer Price Index, measures the average change in prices over time that consumers pay for a basket of goods and services. It is used to assess inflation and inform economic policy decisions. Signup and view all the answers

Study Notes

Vocabulary (Section I)

Autonomous Consumption: Spending that does not depend on current income.
Base Year: A year used as a reference point for comparisons of prices or other economic data.
Bequest Savings: Savings used to provide for future generations.
Budget Balance: Difference between government revenue and spending.
Business Cycle: Fluctuations in economic activity.
Commercial Paper Market: Market for short-term debt securities issued by corporations.
Commodity Money: Money with intrinsic value (e.g., gold, silver).
Commodity-Backed Money: Money that represents a claim on a commodity.
Commodity Substitution Bias: Tendency for substitutions to change measured prices.
Consumption Function: Relationship between consumption and income.
CPI: Consumer Price Index, measures changes in price levels of average goods.
Credit Default Swap: Insurance contract against default on a loan or debt.
Crowding Out: Government borrowing displacing private sector investment.
Cyclical Unemployment: Unemployment related to swings in the business cycle.
Deflation: Decrease in the general price level of goods and services.
Direct Fiscal Policy: Government spending meant as direct interventions.
Discount Rate: Interest rate the Fed charges to banks when they make loans.
Discount Window: Mechanism through which banks borrow from the Fed.
Disinflation: Reduction in the rate at which prices increase.
Divine Coincidence: Situation in which stabilizing output also leads to price stability.
Dual Mandate: Economic goals of full employment and stable prices.
Expansionary Gap: Real GDP exceeds potential GDP.
Excess Reserves: Bank reserves above the required amount.
Federal Funds Rate: Interest rate banks charge one another for short-term loans.
Fiat Money: Money that has no intrinsic value.
Final Good: Good or service purchased by a final user.
Fisher Effect: One-to-one relationship between inflation and nominal interest rate.
Frictional Unemployment: Unemployment related to job search.
Human Capital: Skills and knowledge of workers.
Income-Expenditure Multiplier: Ratio of change in equilibrium output to change in autonomous spending.
Indirect Fiscal Policy: Government influencing aggregate demand indirectly.
Inflation: Increase in the general price level of goods and services.
Interest Rate Effect: Reduction in aggregate demand due to higher interest rates.
Intermediate Good: Input used in the production of a final good.
Lender of Last Resort: Government agency that provides funds to banks in times of insolvency.
Life-Cycle Savings: Savings accumulated over a person's lifetime.
Long Run: Period where all prices, including wages, adjust to changes in supply and demand.
Market Basket: Group of consumer goods and services used to calculate price changes.
Marketplace Costs: Costs associated with finding and acquiring goods and services.
Monetary Base: Sum of currency held by the public plus reserves held by banks.
Money Market Funds: Mutual funds that invest in short-term debt instruments.
Money Multiplier: Ratio of increase in money supply to increase in monetary base.
Mortgage-Backed Securities: Securities backed by mortgages.
National Savings: Total savings of all sectors of the economy.
Net Capital Inflow: Difference between capital inflows and capital outflows.
Net Exports: Difference between exports and imports.
Net Present Value: Value today of a future stream of cash flows.
Open-Market Operations: Purchase or sale of government securities by the Fed to affect the money supply.
Potential Output: Level of output at full employment.
Precautionary Savings: Savings to meet unforeseen circumstances.
Private Savings: Savings of households and businesses.
Quality Adjustment Bias: Difficulty in accurately measuring quality changes over time.
Rate of Return: Percentage of gain on an investment.
Recessionary Gap: Potential output exceeds real GDP.
Regional Federal Reserve Banks: Banks that conduct banking in specific locations.
Reserve Ratio: Fraction of deposits banks must hold in reserve.
Reserve Requirement: Percentage of deposits that banks are required to hold in reserve.
Securitization: Transformation of illiquid assets into marketable securities.
Short Run: Period when some prices do not adjust to changes in supply and demand.
Shoe-Leather Costs: Costs of reducing money holdings due to inflation.
Stagflation: Combination of high inflation and high unemployment.
Sticky Wages: Wages that do not adjust quickly to changes in economic conditions.
Structural Unemployment: Unemployment caused by a mismatch between skills and jobs.
Subprime Mortgages: Mortgages granted to borrowers with poor credit ratings.
Tight Monetary Policy: Policy aimed to decrease the money supply and raise interest rates.
Treasury Bills: Short-term debt obligations issued by the federal government.
Unit-of-Account Costs: Costs of using money as a yardstick to compare values of goods and services.
Unplanned Investment: Change in inventories.
Wealth Effect: Change in consumption due to change in wealth.
Wealth Redistribution: Flow of wealth from one sector to another due to economic fluctuations.

Calculations (Section II)

Unemployment Rate: Percentage of labor force that is unemployed.
Inflation Rate: Percentage change in the price level over a period of time.
Real Interest Rate: Nominal interest rate adjusted for inflation.
GDP Calculation: Calculating the output of an economy using expenditure approach.

Short Answer (Section III)

Economic Growth Measurement: Traditionally measured by changes in real GDP or per capita real GDP.
Productivity Factors: Factors such as technological advancements, capital accumulation, and human capital improvements.
Shortcomings of Traditional Economic Measures: Traditional measurements may overlook other factors of welfare such as distribution of income and environmental impact.
Natural Capital Accounting: System for measuring the value of natural resources and environmental services in economic decisions.

Additional Questions (Other Pages)

Fiscal and Monetary Policy: How to manage the economy in response to various challenges (like output gap).
Interest Rates: How changes in interest rates affect the economy and are used as a tool to influence it.
Housing Market Impacts: How housing market fluctuations impact the overall economy.

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Test your knowledge of essential economic terms with this quiz. From 'Autonomous Consumption' to 'Credit Default Swap', explore various concepts that shape economic understanding. Perfect for students seeking to strengthen their vocabulary in economics.