1、Real GDP is the value of goods and services measured using a constant set of prices5.GDP deflatorThe GDP deflator is the ratio of nominal GDP to real GDP. It reflects whats happening to the overall level of prices in the cconomy.6.Consumer price index （CPI）The consumer price index （CPI） measures the
2、 price of a fixed basket of goods and services purchased by a typical consumer. It measures the overall level of prices7.Unemployment rateThe unemployment rate shows what fraction of those who would like to work do not have a job. Unemployment Rate = Number of Unemployed/Labor Forcex100% &Labor-forc
3、e participation rateThe labor-force participation rate shows the fraction of adults who are working or want to work. Labor-Force Participation Rate = Labor Force / Adult Population xlOO% Chapter 39.Disposable incomeWe define income after the payment of all taxes, K - 7 to be disposable income.10.Mar
4、ginal propensity to consume（MPC）The marginal propensity to consume （MPC） is the amount by which consumption changes when disposable income increases by one dollar. The MPC is between zero and one.1 l.Real interest rateThe real interest rate is the nominal interest rate corrected for the effects of i
5、nflation.Chapter 412.InflationThe overall increase in prices is called inflation,13.HyperinflationHyperinflation is often defined as inflation that exceeds 50 percent per month, which is just over 1 percent per day.14.MoneyMoney is the stock of assets that can be readily used to make transactions.15
6、.Fiat moneyMoney that has no intrinsic value is called fiat money because it is established as money by government decree, or fiat.16.Commodity moneyMost societies in the past have used a commodity with some intrinsic value for money.This type of money is called commodity money.17.Money supplyThe qu
7、antity of money available in an economy is called the money supply*18.Quantity equationThe link between transactions and money is expressed in the following equation, called the quantity equation: Money xVelocity = Price x Transactions M V = P T.19.Income velocity of moneyThe income velocity of mone
8、y tells us the number of times a dollar bill enters someones income in a given period of time.20.Real money balancesM/P is called real money balances. Real money balances measure the purchasing power of the stock of money21.SeigniorageThe revenue raised by the printing of money is called seigniorage
9、.22.Fisher equation and Fisher effectThe nominal interest rate is the sum of the real interest rate and the inflation rate: i = r + The equation written in this way is called the Fisher equationAccording to the quantity theory, an increase in the rate of money growth of 1 percent causes a 1 percent
10、increase in the rate of inflation. According to the Fisher equation, a 1 percent increase in the rate of inflation in turn causes a 1 percent increase in the nominal interest rate. The one-fbr-one relation between the inflation rate and the nominal interest rate is called the Fisher effect.23.Shoele
11、ather costsThe inconvenience of reducing money holding is called the shoeleather cost of inflation, because walking to the bank more often causes ones shoes to wear out more quickly24.Menu costsHigh inflation induces firms to change their posted prices more often. These costs arc called menu costs.2
12、5.Classical dichotomyClassical theory allows us to study how real variables are determined without any reference to the money supply. This theoretical separation of real and nominal variables is called the classical dichotomy.26.Monetary neutralityIn classical economic theory, changes in the money s
13、upply dorf t influence real variables. This irrelevance of money for real variables is called monetary neutrality.Chapter 627.Natural rate of unemploymentNatural rate of unemployment is the average rate of unemployment around which the economy fluctuates28.Frictional unemploymentThe unemployment cau
14、sed by the time it takes workers to search for a job is called frictional unemployment.29.Wage rigidityWage rigidity is the failure of wages to adjust to a level at which labor supply equals labor demand.30.Structural unemploymentThe unemployment resulting from wage rigidity and job rationing is cal
15、led structural unemployment.31.Efficiency wagesEfficiency-wage theories propose a third cause of wage rigidity in addition to minimum-wage laws and unionization. These theories hold that high wages make workers more productive.Chapter 732.Steady stateAt k = 0,so the capital stock k and output ） are
16、steady over time （rather than growing or shrinking）. We therefore call k* the steady-state level of capital. The steady state represents the long-run equilibrium of the economy.33.Golden Rule level of capitalThe steady-state value of k that maximizes consumption is called the Golden Rule level of ca
17、pital and is denoted k*gold.Chapter 834.Endogenous growth theoryModern theories of endogenous growth attempt to explain the rate of technological progress, which the Solow model takes as exogenousChapter 935.Okuns lawBecause employed workers help to produce goods and services and unemployed workers
18、do not, increases in the unemployment rate should be associated with decreases in real GDP This negative relationship between unemployment and GDP is called Okuifs law. Okunos law says that 1 percentage point of unemployment translates into 2 percentage points of GDP.36Aggrcgatc demandAggregate dema
19、nd （AD） is the relationship between the quantity of output demanded and the aggregate price level. In other words, the aggregate demand curve tells us the quantity of goods and services people want to buy at any given level of prices37.Aggregate supplyAggregate supply （AS） is the relationship betwee
20、n the quantity of goods and services supplied and the price level.38.Demand shocksA shock that shifts the aggregate demand curve is called a demand shock.39.Supply shocksA shock that shifts the aggregate supply curve is called a supply shock.40.Stabilization policyEconomists use the term stabilizati
21、on policy to refer to policy actions aimed at reducing the severity of short-run economic fluctuations.Chapter 1041 .IS curveIS stands for “investment and saving/ and the IS curve represents the negative relationship between the interest rate and the level of income that arises from equilibrium in t
22、he market for goods and services42.LM curveLM stands for liquiditymoney广 and the LM curve represents the positive relationship between the interest rate and the level of income that arises from equilibrium in the market for real money balances43.Keynesian crossThe Keynesian cross is a basic model of
23、 income determination. It takes fiscal policy and planned investment as exogenous and then shows that there is one level of national income at which actual expenditure equals planned expenditureFIGURE 1 0-3incomeThe Keynesian Cross The equilibrium in the Keynesian cross is the point at which in come
24、 （actual expe nditure） equals planned expenditure （point A）.Chapter 1344.Phillips curveThe Phillips curve in its modem form states that the inflation rate depends on three forces:Expected inflationThe deviation of unemployment from the natural rate, called cyclical unemploymentSupply shocksThese thr
25、ee forces are expressed in the following equation:II = ETI- （3 （m un） +vInflation= Expected Inflation -（ B xCyclical Unemployment） + Supply Shock, where B is a parameter measuring the response of inflation to cyclical unemployment. There is a minus sign before the cyclical unemployment term: other t
26、hings equal, higher unemployment is associated with lower inflation45.Adaptive expectationsA simple and often plausible assumption is that people form their expectations of inflation based on recently observed inflation. This assumption is called adaptive expectations.46.Demand-pull inflationThe sec
27、ond term, B （w 一 un）, shows that cyclical unemploymentthe deviation of unemployment from its natural ratexerts upward or downward pressure on inflation Low unemployment pulls the inflation rate up. This is called demand-pull inflation because high aggregate demand is responsible for this type of inf
28、lation.47.Cost-push inflationThe third term, v, shows that inflation also rises and falls because of supply shocks. An adverse supply shock, such as the rise in world oil prices in the 1970s, implies a positive value of v and causes inflation to rise. This is called cost-push inflation because adver
29、se supply shocks are typically events that push up the costs of production.48.Sacrifice ratioThe sacrifice ratio is the percentage of a yearns real GDP that must be forgone to reduce inflation by 1 percentage point. Although estimates of the sacrifice ratio vary substantially, a typical estimate is
30、about 5: for every percentage point that inflation is to fall, 5 percent of one years GDP must be sacrificed.49.Rational expectationsAn alternative approach is to assume that people have rational expectations. That is, we might assume that people optimally use all the available information, including information about current government policies, to forecast the future.50.Natural-rate hypothesisThe natural-rate hypothesis is summarized in the fol
