Nominal gdp-is measured in current, or actual prices, the prices that buyers actually pay for goods and services purchased.

Nominal income- . Income unadjusted for the effects of inflation or deflation, and stated in the currency in which it is earned.

Nominal wage is the wage in terms of money, which is paid to the workers and employees in accordance with the quantity and quality of labor they work for a certain period of time.

Normal profit-When economic profit is equal to zero; this occurs when the difference between total revenue and total cost (explic it and implicit costs) equals zero.

Occupational Licensing-the laws of state or local governments that require that a worker satisfy ceretain specified requirements and obtain a license from a licensing board before engaging in a particular occupation.

Okun'sLaw-the relationship between an economy's unemployment rate and its gross national product (GNP)

Output gap the percentage difference between actual aggregate output and potential output.

Paradox of thrift - the seemingly self-contradictory but nevertheless true statement that increased saving can be both good and bad for the economy. It is good in the long run when matched with increased investment spending, but bad during a recession because it reduces spending, which further reduces output and employment. In fact, attempts by households to save more during a recession may simply worsen the recession and result in less saving.

Potential output the level of real GDP the economy would produce if all prices, including nominal wages, were fully flexible.

Personal income- refers to an individual's total earnings from wages, investment enterprises, and other ventures. It is the sum of all the incomes actually received by all the individuals or household during a given period.

Personal Consumption Expenditures - The expenditures of households for durable and non-durable consumer goods and services.

Phillips curve - graphical representation of the proposed inverse relationship between inflation and unemployment.

Present value is a future amount of money that has been discounted to reflect its current value, as if it exists today.

Price Index - An index of number that shows how the weighted average price of a "market basket" of goods changes over time

Price-level surprises Simply unanticipated changes in the price level - cause temporary changes in real output.

Protectionism protecting domestic manufacturers from foreign competition by imposing tariffs and quotas on imported goods

Planned investment - the amount that firms plan or intend to invest.

Ratio reserve deposit by bank. amount deposit by commercial bank checking deposit.

Rational expectation theory The hypothesis that firms and households expect monetary and fiscal policies to have certain effects on the economy and (in pursuit of their own self-interests) take actions that make these policies ineffective

Real GDP per capital- the market value of all officially recognized final goods and services produced within a country in a given period of time. GDP per capita is often considered an indicator of a country's standard of living;GDP per capita is not a measure of personal income (See Standard of living and GDP). Under economic theory, GDP per capita exactly equals the gross domestic income (GDI) per capita

Reserve or deposits multiplied by 10%. commercial bank requires reserve.

Real GDP- Real Gross Domestic Product (real GDP) is a macroeconomic measure of the value of economic output adjusted for price changes (i.e., inflation or deflation). This adjustment transforms the money-value measure, nominal GDP, into an index for quantity of total output.

Real Interest Rate-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 (Expectedor Actual))

real business-cycle theory An attempt to explain business cycle fluctuations under the assumptions of complete price and wage flexibility and rational expectations (emphasizes various kinds of shocks)

Real-balances effect-A change in aggregate expenditures on real production made by the household, business, government, and foreign sectors that results because a change in the price level alters the purchasing power of money

Recession-in economies is relatively mild, non-critical production decline or slowdown in economic growth. The decline in production is characterized by zero growth in gross national product, or a drop for more than six months.

Recessionary expenditure gap - the amount by which the aggregate expenditures schedule must shift upward to increase the real GDP to its full-employment (this gap produces a negative GDP (actual GDP minus potential GDP)

Recessionary gap when aggregate output is below potential output

Rule of 70-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.

Saving- process of setting aside a portion of current income for future use, or the resources accumulated in this way over a given period of time. Savings may take the form of bank depositsand cash holding sorsecurities.

Saving schedule - a schedule that shows the amounts households plan to save (plan not to spend for consumer goods), at different levels of disposable income.

Subsidy a government payment that supports a business or market

Self-correcting when shocks to aggregate demand affect aggregate output in the short run, but not the long run.

Short-run aggregate supply curve shows the relationship between the aggregate price level and the quantity of aggregate output supplies that exists in the short run, the time period when many production costs can be taken as fixed.

Short-run aggregate supply The relationship between the quantity of real GDP supplied and the price level when the money wage rate, the prices of other resources, and potential GDP remain constant.

Short-run aggregate demand increase in investment shifts AD to the right, hgher price level results, workers want higher wages, , firms will charge higher prices, AS shift back to the left.

Short-run macroeconomic equilibrium when the quantity of aggregate output supplied is equal to the quantity demanded.

Short-run equilibrium aggregate price level the aggregate price level in the short-run macroeconomic equilibrium.

Short-run equilibrium aggregate output the quantity of aggregate output produced in the short-run macroeconomic equilibrium.

Sole Proprietorship business owned by one person.

Stagflation is a term used in modern macroeconomics to refer to a situation in which the economic downturn and the depressed state of the economy (stagnation and rising unemployment) combined with rising prices - inflation.

Sticky wages nominal wages that are slow to fall even in the face of high unemployment and slow to rise even in the face of labor shortages.

Structural unemployment is a form of unemployment where, at a given wage, the quantity of labor supplied exceeds the quantity of labor demanded.

Supply shock an event that shifts the short-run aggregate supply curve.

Stagflation the combination of inflation and stagnating (or falling) aggregate output

Taylor rule- the rule stipulates that for each one-percent increase in inflation, the central bank should raise the nominal in terestrate by more than one percentage point.

The average propensity to consume - is the desired proportion of the total costs in the total amount of disposable income

The economic rent is a difference between a payment for a resource and the minimum payment necessary in order that this resource was offered. The economic rent can be withdrawn by means of the taxation, without mentioning the resource offer.

The Future Value - is the sum, which at a certain date in the future will become a certain amount of money invested today at a certain interest rate in advance.

The labor force in the statistics - the number of people willing to work for wages.

The Laffer curve is a representation of the relationship between possible rates of taxation and the resulting levels of government revenue.

The marginal product (MP) - this is an additional output, which is achieved by increasing the use of variable resource at a constant amount of other resources.

The marginal propensity to consume (MPC) is an empirical metric that quantifies induced consumption, the concept that the increase in personal consumer spending occurs with an increase in disposable income.

The marginal propensity to save (MPS) refers to the increase in saving that result from an increase in income.

The marginal resource cost - an indicator of marginal analysis of industrial activity, the additional cost of producing an additional unit of output.

The marginal revenue product – an additional income from the sale of an additional unit of product.

The nominal interest rate is the periodic interest rate times the number of periods per year.

The real wages refers to wages that have been adjusted for inflation.

The unemployment rate - the ratio of the number of unemployed certain age group of the economically active population of the relevant age group.

Trade Surplus when a country exports more than it imports.

Trade Deficit when a country imports more than it exports

The Wealth Effect-the premise that when the value of stock portfolios rises due to escalating stock prices, investors feel more comfortable and secure about their wealth, causing them to spend more.

Taxes on Production and Imports - A national income accounting category that includes such taxes as sales, excise, business property taxes, and tariffs which firms treat as costs of producing a product and pass on to buyers by charging a higher price.

Taylor rule A modern monetary rule that would stipulate exactly how much the Federal Reserve should change interest rates in response to divergences of real GDP from potential GDP and divergences of actual rates of inflation from a target rate of inflation. Assumes Fed has 2% target inflation. then 3 rules: 1) if real gdp=potential, real fed fund rate= 2%. 2) for each 1% increase in GDP above potential, a .5% in FFR. 3) for each 1% increase in inflation rate above 2%, and .5% increase in FFR.

Tariffs taxes on imported goods.

Trade exchange or give (something) in exchange for.

Trade deficit occurs when one country buys more foreign goods than it sells to other countries. When imports exceed exports.

Trade surplus occurs when one country sells more goods to other countries than it buys. When exports exceed imports.

Trade Barriers government-imposed regulations that increase the cost and restrict the number of imported goods

Unemployment occurs when people are without work and actively seeking work. The unemployment rate is a measure of the prevalence of unemployment.

Usury Laws- regulations governing the amount of interest that can be charged on a loan. Usury laws specifically target the practice of charging excessively high rates on loans by setting caps on the maximum amount of interest that can belevied. These laws are designed to protect consumers.

Unplanned changes in inventories - changes in inventories that firms do not anticipate; changes in inventories that occur because of unexpected increases or decreases of aggregate spending (or of aggregate expenditures.

Value Added - The value of the product sold by a firm less the value of the products purchased and used by the firm to produce the product

Wage rate - the price paid for the use of labor.

Wealth effect - the tendency for people to increase their consumption spending when the value of their financial and real assists rises and to decrease their consumption spending when the value of those assets fall