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Glossary.htm
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<!DOCTYPE HTML PUBLIC "-//IETF//DTD HTML//EN">
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<title>Glossary</title>
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<table border="1" cellpadding="8" cellspacing="6">
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<td><h2 align="center">Glossary of Economic Terminology</h2>
</td>
</tr>
<tr>
<td><h2>Other Sources of Definitions</h2>
<p><a href="http://www.dismal.com">The Dismal Scientist</a></td>
</tr>
<tr>
<td><h2>National Income Accounting</h2>
<h3>Output Concepts</h3>
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<td>Domestic product</td>
<td>All goods and services produced within national borders</td>
</tr>
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<td>National product</td>
<td>All goods and services produced by national residents, even if
production takes place abroad.</td>
</tr>
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<td>Gross Product</td>
<td>Includes replacement of depreciated capital</td>
</tr>
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<td>Net Product</td>
<td>Gross Product - Depreciation</td>
</tr>
</table>
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<h3>Income Concepts</h3>
<div align="left"><table border="1" cellpadding="4" cellspacing="1">
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<td>Disposable income</td>
<td>[Labor income + capital income + transfers] to persons, <br>
net of taxes and social insurance contributions</td>
</tr>
</table>
</div><h3>Investment Concepts</h3>
<p>Investment = [Business fixed investment] + [Residential investment] +
[Inventory investment]</p>
<p>Business fixed investment = [Inv. in plant and
equipment] + [Inv. in structures]</p>
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<table border="1" cellpadding="4" cellspacing="1">
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<td>Net investment</td>
<td>Change in the capital stock</td>
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<td>Gross investment</td>
<td>Net investment + Replacement investment</td>
</tr>
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<td> </td>
<td> </td>
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<h3>Savings Concepts</h3>
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<td>Personal saving</td>
<td><p class="MsoNormal">[Disposable income] – [Personal outlays]<br>
Personal outlays are mostly consumption and interest payments.</td>
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<td>National saving</td>
<td>Private + public saving</td>
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<td>Private saving</td>
<td>Saving by persons and corporations</td>
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<td>Public saving</td>
<td>Minus the public sector budget deficit</td>
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<td>Gross/net saving</td>
<td>Gross saving includes replacement of depreciation. Net saving does not.</td>
</tr>
</table>
</div><p> </td>
</tr>
<tr>
<td><h2>Macro Concepts</h2>
<p><strong>ECI: </strong>Employment cost index. Measures total compensation paid to
workers, including both wages and salaries and the cost of benefits such as health plans.</p>
<p><b>Labor force:</b> All employed and unemployed persons. The labor force
participation rate is the ratio of the labor force to the working age
population.</p>
<p><strong>NAIRU:</strong> "Non-accelerating inflation rate of
unemployment." The unemployment rate that is consistent with constant inflation.</p>
<p><strong>Okun's law</strong>: A negative relationship between the change in unemployment
and growth. Allows ot estimate the GDP growth rate that is sustainable in the long-run.</p>
<p><strong>Phillips curve</strong>: A negative relationship between inflation and
unemployment. Many versions exist. There is wide agreement that the long-run Phillips
curve is vertical: Additional inflation does not buy higher employment.
<p><b>Recession</b>: A downturn in the business cycle. There are many
operational definitions such as "2 consecutive quarters with negative
real GDP growth." The official dating is done by an NBER committee. It
does not follow strict rules, but uses judgement.
<p><b>Unemployment:</b> Persons are categorized as employed,
unemployed, or not in the labor force. A person counts as unemployed, if
he/she is not currently employed, but looking for a job or waiting for a job
to start. All other non-employed are not considered part of the labor force.
This includes those who have given up the job search process (the
discouraged).</td>
</tr>
<tr>
<td><h2>Micro Concepts</h2>
<p><strong>Moral hazard:</strong> Agents engage in excessive risk-taking because
they are covered by some form of insurance.</td>
</tr>
<tr>
<td><h2>Statistical Terminology</h2>
<p><strong>Mean: </strong>Average value of a random variable</p>
<p><strong>Normal distribution</strong>: (Gaussian distribution) The
well-known bell-shaped distribution. Many "natural" processes generate normally
distributed random variables. For example: Toss a coin many times and count the fraction
coming up "heads." This is normally distributed.</p>
<p><strong>Standard deviation</strong>: Average size of the fluctuation of a random
variable. Square root of the variance. Example: The standard deviation of business cycle
peaks for GDP is 1.7%. This means that on average GDP is 1.7% above its trend level at the
end of a boom. </p>
<p><strong>Trend</strong>: Draw a smooth line through a time series and you get its
trend. Many formal methods exist for "drawing" the trend.</p>
<p><strong>Variance</strong>: Var(x) = E( [x - mean(x)]^2 )</td>
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