Terms
Base Year
-
The year from which the original quantities and/or prices are taken in the
calculation of an index.
Benefits
-
Non-cash payments made to employees. For instance, health care plans or
pensions.
Bureau of Labor Statistics
-
The government organization responsible for regularly gathering data about the
economic status of the population.
Comparison Year
-
The year for which the quantities and/or prices of goods or services are
replaced by those of the base year in the calculation of an index.
Cost of Living
-
An index based on the amount of money necessary to purchase the market basket of
goods and services purchased by the average consumer, relative to the same
basket in an earlier year.
CPI (Consumer Price Index)
-
The consumer price index is a cost of living index that is based on a fixed
market basket of goods and services purchased by the average consumer.
Cyclical Unemployment
-
Deviations from the natural rate of unemployment based on normal
fluctuations in the business cycle.
Efficiency Wages
-
Wages paid by a firm to an employee that are above the market-clearing
wage
with the intention of keeping the employees healthier, happier, and of high
productivity. Efficiency wages increase unemployment by creating a surplus
of labor at the given wage.
Efficient Market
-
A market where the quantity supplied is equal to the quantity demanded and the
price of goods is set at the equilibrium
price.
Employed
-
An individual who is currently working at a job.
Equilibrate
-
Describes the movement of the factors of a market so that the quantity supplied
is equal to the quantity demanded and the price of goods is set at the
equilibrium price.
Equilibrium Wage
-
The wage in the labor market where labor supply is equal to labor demand and the
market clears.
Expected Inflation
-
When economists and consumers plan upon the presence of inflation, and this
expectation is reflected in the economic decisions made by these groups.
Fixed Basket
-
A set group of goods and services whose quantities do not change over time.
A fixed basket is used in the calculation of the CPI.
Flexible Basket
-
A group of goods and services that changes both in composition and quantity as
consumers' preferences change. A flexible basket is used in the calculation of
the GDP deflator, for instance.
Frictional Unemployment
-
A type of unemployment in which an individual is between jobs.
Full Capacity
-
When the economy is producing at an output level that corresponds to the
natural rate of unemployment, or about 6%.
Full Employment
-
When the unemployment level is at, or very close to, 6% (the natural
rate of
unemployment).
Full Output
-
The level of output that occurs when the labor force is at full employment.
Gross Domestic Product (GDP)
-
The gross domestic product is the total value of all goods and services produced
in an economy.
GDP Deflator
-
The ratio of the nominal GDP to the real GDP. It shows the overall
price level by comparing the cost of a basket of goods from one year to the
next.
Inflation
-
An increase in the overall price level.
Job Search
-
The active process of looking for a job.
Labor Market
-
The market where firms supply jobs and individuals supply labor and in which
wage is the equilibrating factor.
Labor Unions
-
Groups of workers who rally together to improve the pay and conditions on the
job.
Laspeyres Index
-
An index where the basket of goods is fixed.
Macroeconomic Economy
-
This refers to the economy as a whole, as opposed to a view of the economy as
based on the actions of individual actors.
Market-Clearing Level
-
The level, price, or quantity where supply and demand are equal.
Menu Costs of Inflation
-
Costs associated with inflation that arise when firms have to change printed
price schedules.
Minimum Wage Laws
-
Government imposed minimum hourly wages that must be observed. The minimum wage
is aimed at providing a minimum standard of living, but also have the ancillary
effect of increasing unemployment.
National Output
-
The total value of goods and services produced by an economy in a specified time
period. Also known as GDP.
Natural Rate of Unemployment
-
The rate of unemployment that the economy tends to hover around. Most
economists believe that this value is around 6%.
Nominal GDP
-
The total value of all goods and services produced in an economy, valued at
current dollar, and not adjusted for inflation.
Nominal Prices
-
Prices of goods and services valued at dollars current when the goods and
services were provided. Nominal prices are not adjusted for inflation.
Okun's Law
-
This details the inverse relationship between unemployment and real
GDP. Click here to see the Okun's Law Formula.
Out of the Labor Force
-
Describes people who are not employed and are not currently looking for
employment. This includes children and retirees.
Paasche Index
-
An index based upon a flexible basket of goods and services.
Phillips Curve
-
Describes the general inverse relationship between unemployment and
inflation. Click here to see the Phillips Curve Formula.
Potential Output Level
-
The output of an economy when all of the productive factors, including labor,
are used at their normal rate. In terms of unemployment, this corresponds
to a 6% unemployment rate.
Price Level
-
The general cost of items within an economy relative to one another.
Price of Labor
-
The wage paid to workers.
Production Capability
-
The production level of an economy when all of the productive factors, including
labor, are used at their normal rate. In terms of unemployment, this
corresponds to a 6% unemployment rate.
Purchasing Power
-
The amount of goods and services that a unit of currency can buy.
Real GDP
-
The total value of all goods and services produced in an economy valued at
constant dollars, or adjusted for inflation.
Real Value
-
The value of something at constant dollars, or adjusted for inflation.
Shoeleather Cost of Inflation
-
Costs of expected inflation caused by people having to make more trips to
the bank to make withdrawals because they do not want to keep cash on hand.
Stagflation
-
When inflation and unemployment both increase. This phenomenon seems to negate
the general applicability of the Phillips Curve.
Standard of Living
-
The level of economic well-being that an individual enjoys.
Structural Unemployment
-
Unemployment due to a mismatch between workers' skills and firms' needs.
Substitute
-
An item that is purchased in lieu of a more expensive or less desirable item.
Total Labor Force
-
The sum of employed workers and unemployed job searchers.
Unemployed
-
Describes individuals who are not currently working but are currently searching
for a job.
Unexpected Inflation
-
Inflation that economists and consumers do not expect.
Value of a Dollar
-
The purchasing power of a dollar.
Wage
-
The amount of money paid to a worker.
Formulae
|
Percentage change in the price level
|
[CPI(earlier year) - CPI(later year)] / CPI(earlier year)
or [GDP(earlier year) - GDP(later year)] / GDP(earlier year)
|
|
Okun's Law
|
Percentage change in real GDP = 3% - 2(change in the unemployment rate)
|
|
Unemployment Rate
|
Unemployment rate = (unemployed)/(employed + unemployed)
|
|
Phillips Curve
|
Inflation = ((expected inflation) - B) ((cyclical unemployment rate) + (error))
where B equals a number greater than zero that represents the sensitivity of
inflation to unemployment.
|
