hey everyone! here’s the glossary i’ve compiled for Monday. I’ll send it via email as well. Have a great weekend, see you all tomorrow. the final countdown….
Accelerator effect-The positive affect on private fixed investment of the growth of the market economy ( GDP). Rising GDP equals rising business profits, increased sales and cash flow, greater existing capacity.
base year- The year used as the basis for comparison by a price index such as the CPI. The index for any year is the average of prices for that year compared to the base year; e.g., 110 means that prices are 10% higher than in the base year. The base year is also the year whose prices are used to value something in real terms or after adjusting for inflation.
big mac index- guide to whether countries currencies are at their correct level. An index of PPP exchange rates based solely on the prices of the Big Mac sandwich in McDonald’s restaurants around the world, published each spring by the Economist.
Bond yield curve- in finance the yield curve is the relationship between the interest rate and the time to maturity of debt for a given borrower of a given currency.
Business confidence – how people that run companies feel about their organizations’ prospects. Useful to provide signs about the current condition of the economy. Consistent with a very tentative and fragile global economic recovery. Businesses on net remain negative about the strength of their sales, hiring, inventory investment, and the demand for office space. They are more upbeat about the outlook into next year, equipment and software investment, and their broad assessment of current business conditions. Business sentiment generally reflects economic conditions and does not drive them, save at turning points in the business cycle. Recessions occur when businesses lose faith that their customers will purchase what they produce; they respond by cutting their investment and payrolls. The best measure of business faith is the net percentage of positive responses across all the respondents to the nine questions posed. When measurably less than 10% of responses are net positive, as was the case during much of 2008 and this year, the economy is in recession.
Business Sales and Inventories- Total current-dollar sales and inventories for the manufacturing, wholesale, and retail sectors of the economy.
capacity utilization rate- Capacity utilization refers to the relationship between actual output that is produced with the installed equipment and potential output that could be produced. 82%-85% price inflation will increase. Capacity utilization also called the operating rate. Measures how close our economy is to full employment.
Commercial real estate index (Moodys/Real Commerical Property Price Index) – the set of indices developed so far includes a national all-property index at the monthly frequency, national quarterly indices for each of the four major property type sectors (office, apartment, industrial, retail), selected annual-frequency indices for specific property sectors in specific metropolitan areas, and primary markets quarterly indices for the top 10 metropolitan areas in the major property types.
Consumer Price Index (CPI)-An index designed to measure the change in price of a fixed market basket of goods and services. The market basket of goods and services is representative of the purchases of a typical urban consumer. The index is intended to measure pure price change only; attempts are made to remove changes in price resulting from changes in quality.
Consumer sentiment- normalized to have a value of 100 in December 1964. Published at the University of Michigan. It is included in the leading indicator composite index. Included is how consumers view prospects of their own financial situation, how they view prospects for the general economy in the near term, their view prospects for the economy over the term.
Consumer spending (consumer expenditure survey) – provide information on the buying habits of American consumers, including data on their expenditures, income, and consumer unit. Published by the Bureau of Labor Statistics s
deflation – decrease in the money supply relative to the amount of goods and services, increases the purchasing power of money.
Discount rate- One of the Federal Reserve Bank’s activities is lending money to commercial banks. The discount rate is the interest rate commercial banks are able to lend money for from their regional Federal Reserve Bank. The Federal Reserve Banks, also known the discount window, offer three discount window programs to commercial banks:
disinflation-a decrease in the rate of inflation. A slowdown in the increase of the general price level of goods and services Cause of disinflation are either a decrease in the growth rate money supply, or a contraction of the business cycle. Prices are still rising during disinflation but at a lower rate.
Durable goods -consist of motor vehicles and parts, furniture and household equipment, and other durable goods.
ECI- The Employment Cost Index (ECI) measures the quarterly changes in costs of labor for businesses in the United States.
Feds Fund Rate- the Federal Funds rate is the interest rate on overnight loans between banks. The rate may vary from bank to bank and from day to day. These loans are most often used to satisfy the reserve requirement.
GDP- The total value of goods and services produced within the borders of the United States, regardless of who owns the assets or the nationality of the labor used in producing that output.
GDP-Deflator- The GDP deflator is a measure that economist use to monitor the average level of prices in the economy and thus the rate of inflation. The GDP deflator gets its name because it can be used to take inflation out of nominal GDP – that is to deflate nominal GDP for the rise that is due to increase in prices. The GDP deflator measures the current level of prices relative to the level of prices in the base year and is computed by dividing the nominal GDP through the real GDP.
GNP- Gross National Product (GNP) measures the output of the citizens of the US and the income from assets owned by US entities, regardless of where located.) The growth of output is measured in real terms; meaning increases in output due to inflation have been removed. The Source of Data is: US Department of Commerce; Bureau of Economic Analysis. Information is released quarterly. Availability: The Federal Reserve’s primary goal is sustained growth of the economy with full employment and stable prices. Real GDP is the most comprehensive measure of the performance of the U.S. economy. By monitoring trends in the overall growth rate as well as the unemployment rate and the rate of inflation, policy makers are able to assess whether the current stance of monetary policy is consistent with that primary goal.
housing starts- An estimate of the number of housing units on which construction was started. Starting construction is defined as excavation for the footings or foundation, or the first shovel of dirt to break ground. (In response to natural disasters such as Hurricane Andrew in August of 1992, that definition has been expanded to a housing unit built on an existing foundation after the previous structure had been completely destroyed.) Housing starts are divided into single-family and multifamily(2+) units. Beginning construction on a 100 unit apartment building, for example, is counted as 100 starts.
inflation- A rate of increase in the general price level of all goods and services.
inflation target- monetary policy to insure that inflation is neither too high, nor too low. US does not have an inflation target because it restricts policy flexibility.
Liquidity trap- Situation in which the short-term nominal interest rate is zero. What is important is not the current money supply but managing expectations about the future of the money supply.
Men’s under ware index- if underwear if relatively new the recovery of the economy is underway. When times are good, men buy new underwear on a regular basis. Started being observed in 2003.
monetary base- Excess reserves, currency held by people, money in checking accounts ( now accounts)
Monetary Policies – Monetary policies are demand-side macroeconomic policies. They work by stimulating or discouraging spending on goods and services. Economy-wide recessions and booms reflect fluctuations in aggregate demand rather than in the economy’s productive capacity. Monetary policy tries to damp, perhaps even eliminate, those fluctuations. It is not a supply-side instrument.
Nominal spending-
Nondurable goods- consist of food, clothing, fuel, and other nondurable goods.
Nonfarm payroll-An estimate of the number of payroll jobs at all nonfarm business establishments and government agencies. Information is also provided on the average number of hours worked per week and average hourly and weekly earnings.
Okun’s law- states that for every 3% GDP falls relative to potential GDP, unemployment rises 1%.
PCE- The Personal Consumption Expenditure Price Index (PCE) is an indicator of the average increase in prices for all domestic personal consumption. The PCE is produced by the Bureau of Economic Analysis (BEA). The BEA uses the price indexes computed by the BLS. The PCE reflects the price of expenditures made by households, including those made on behalf of households. The Composition of expenditures changes from quarter to quarter. The BEA computes the PCE Price Index by using a Fisher index formula. While the CPI weights are derived from household surveys, the PCE weights are derived from business surveys.
Phillips Curve- defined as the tradeoff between inflation and unemployment. The lower the unemployment the higher the rate of increase in nominal wages.
PPI- The Producer Price Index is a family of indexes that measures the average change over time in the selling prices received by domestic producers of goods and services. PPIs measure price change from the perspective of the seller. This contrasts with other measures, such as the Consumer Price Index (CPI), that measure price change from the purchaser’s perspective. Sellers’ and purchasers’ prices may differ due to government subsidies, sales and excise taxes, and distribution costs.
Price stability- Price stability is one of the Feds goals. Price stability indicates that the price of goods is not increasing or decreasing much over time. Price stability is not common for an economy.
Productivity- measures how efficiently economic inputs are converted into output. Advances in productivity are a significant source of increased potential national income. The US economy has been able to produce more goods and services over time while reducing the required input for each unit of output, by making production more efficient. Labor productivity is the ratio of the output of goods and services to the labor hours devoted to the production of that output.
real commercial property price index- http://web.mit.edu/cre/research/credl/rca.htmls
Retail Sales- An estimate of the total sales of goods by all retail establishments in the U.S. Data are presented in nominal, or current, dollars, meaning they are not adjusted for inflation.
S&P 500 Stock Index- One of several indices designed to measure changes in price of a broad array of stocks.
Seasonally and not seasonally adjusted data are available.
Services- consist of housing, household operations, transportation, medical care, recreation, and other services.
Stagflation-inflation and slow economic growth occur simultaneously
Taylor Rule- monetary-policy rule that states how much the central bank would or should change the nominal interest rate in response to divergences of actually inflation
Ted Spread- the difference between the interest rate interbank loans and short-term T-bills,
Under ware index- sales of men’s underwear typically are stable because they are a necessity. But during tough financial times, men’s underwear sales tend to dip. Originated in 2003
Unemployment insurance claims- the number of people who file for unemployment benefits in a give week. Collected by the department of labor. Used to measure the health of the job market. An increase indicates that fewer people are being hired.
Unemployment rate- the number of persons unemployed divided by the labor force, expressed as a percent of the labor force.
Yield curve- the relation between the interest rate and the time to maturity of debt for a given borrower.
Yield on 10-year Treasury Bond- The current market interest rate or yield on U.S. Treasury bonds maturing 10 years in the future.
