Economics Review

Gross Domestic Product A measure of economic activity within a country. Gross Domestic Product (GDP) is a measure of National Income. It is the total value of all goods and services produced over a given time period (usually a year) excluding net property income from abroad. It can be measured either as the total of income, expenditure or output. _GDP_(nominal) _GDP_(nominal) _GDP_(nominal)_per_capita _GDP_(nominal)_per_capita

Inflation The rise in general prices and the reduction in value of money. Inflation is a sustained increase in the general price level. In other words it is the rate at which prices are increasing. It can be measured either monthly, quarterly or annually. It is usually measured by the Consumer Price Index. ate/CurrentInflation.asp ate/CurrentInflation.asp

Cost Push Inflation When a cost of production (e.g. wages) increases and firms raise prices to maintain profits. Cost increases may happen because wages have gone up or because raw material prices have increased. It is important not to confuse cost-push with demand-pull inflation. Cost- push inflation happens when costs have risen independently of demand.

Demand Pull Inflation Occurs when aggregate demand exceeds aggregate supply. If there is an excess level of demand in the economy, this will tend to cause prices to rise. Demand-pull inflation is essentially 'too much money chasing too few goods.'

Deflation A reduction in national income and output.

Consumer Price Index The term for a hypothetical basket of goods and services purchased by consumers. Changes in the overall price of the basket become a measure of inflation. *Look at average price data

Recession A period of negative economic growth at the trough of the trade cycle. A recession is usually defined as two consecutive quarters of negative economic growth.

Depression A depression is a severe downturn in economic activity. These are considerably worse than recessions.

Full Employment Full employment occurs when everyone in the economy who is willing to work at the current market rate for someone of his skills have jobs. Full employment does not imply that all adults have jobs. 5% Unemployment is generally considered to be Full Employment Current U.S. 5.5% WI % 8#q=current+unemployment+wisconsin 8#q=current+unemployment+wisconsin

Unemployment Frictional- between jobs Cyclical- decline in business cycle Seasonal- caused by change in season Structural- new technology makes job obsolete

Price War/Destructive Competition A series of price reductions that may become so drastic that each seller involved suffers considerable losses.

Collusion Agreements between firms to restrict competition. Companies work together instead of competing so that they can keep prices artificially higher than the true equilibrium price.

Progressive Tax A tax on income in which the proportion of tax paid relative to income increases as income increases. Income Tax taxreceipt?utm_source= 151&utm_medium=text1&utm_campai gn=taxes taxreceipt?utm_source= 151&utm_medium=text1&utm_campai gn=taxes Deductions-Raise-a-Red-Flag-with-the-IRS/cdid/11153/pid/ Deductions-Raise-a-Red-Flag-with-the-IRS/cdid/11153/pid/10403

Progressive Tax Supporters -Marginal Sacrifice -More Revenue -More Opportunity for lower and middle class -Prevent concentration at the top -Reduce inequality Critics -Unequal treatment of wealthy citizens -Complexity of system -Encourages tax avoidance strategies. -Lack of return (pay more to get same services)

Regressive Tax A tax that takes a larger share of a small income than of a large income. Sales Tax +tax +tax

Flat Tax/Proportional Tax A tax on income where the proportion of tax paid relative to income does not change as income changes. A person making 200,000 pays the same percentage of income as a person making 20,000.

Tax Incentive A provision in tax law intended to stimulate economic activity by encouraging businesses to invest in new capital. Energy Efficiency tax credits and rebates. –Buy a House –Have Children –Energy Efficiency Tax Credits

Deficit When government expenditure exceeds government income.

National Debt The total amount owed by central government which has accumulated over time. The National Debt is therefore the total amount of borrowing accumulated by the government that is still outstanding. It is the total amount that the government owes to individuals and institutions. ck.htm ck.htm

Gender Wage Gap The difference in pay between men and women for doing the same job. tml tml There is a lot of debate between Liberals and Conservatives surrounding the issue of a gender wage gap.

Federal Reserve Nations Central Bank

Monetary Policy The use by government of changes in the supply of money and interest rates to achieve desired economic policy objectives. They aim therefore to influence the level of economic activity. The government may want to use their monetary policy to either boost economic activity (if the economy is in a recession) or perhaps to reduce economic activity (if the economy is growing too fast, causing inflation). If they want to slow down the economy they may use contractionary (or deflationary) monetary policy. This is likely to mean: 1...increasing the level of interest rates 2...reducing the rate of growth of the money supply On the other hand if they want to boost the economy because it is in a downturn, they may choose to use expansionary (or inflationary) monetary policy. This would mean: 1...reducing the level of interest rates 2...allowing the rate of growth of the money supply to increase

Discount Rate The interest rate charged by the Federal Reserve for loans to member banks. Current Discount Rate is 1.0 –Typically moves up or down by.25

Easy Money Policy Government methods, such as reduced interest rates, to expand economy’s money supply.

Tight Money Policy Government methods, such as increased interest rates, designed to reduce the economy’s money supply.

Fiscal Policy The stance taken by government with regard to its spending or taxation with a view to influencing the level of economic activity. An expansionary (or inflationary) fiscal policy could mean: 1...cutting levels of direct or indirect tax 2...increasing government expenditure The effect of these policies would be to encourage more spending and boost the economy. A contractionary (or deflationary) fiscal policy could be: 1...increasing taxation - either direct or indirect 2...cutting government expenditure These policies would reduce the level of demand in the economy and help to reduce inflation.

Comparative Advantage This exists when a country produces a good or service at a lower opportunity cost than its trading partners.

Absolute Advantage Exists when a country can produce more of a product per resource unit than another country. It is a basis for trade. A country with an absolute advantage is producing more efficiently than another.

Trade Deficit A condition in international trade in which the value of a nation’s imports from another country exceeds the value of its exports to that particular country.

Profit/Loss on Stock Sale Price – Purchase Price = Profit/Loss Bought 1 share for $10 and sold it for $15 $15 – $10 = $5 Profit per share If I bought 100 shares of the same stock my total profit would be $500 $5 per share profit X 100 shares = $500

Websites used for this PPT htm htm cs/l/blglossary.htm cs/l/blglossary.htm