Chapter 2: Observing and Explaining the Economy
ceteris paribus all other things being equal; refers to holding all other variables constant or keeping all other things the same when one variable is changed.
circular flow diagram a diagram illustrating the flow of funds through the economy as people buy and sell in markets.
controlled experiments empirical tests of theories in a controlled setting in which particular effects can be isolated.
Council of Economic Advisers a three-member group of economists appointed by the president of the United States to analyze the economy and make recommendations about economic policy.
economic model an explanation of how the economy or part of the economy works.
economic variable any economic measure that can vary over a range of values.
experimental economics a branch of economics that uses laboratory experiments to analyze economic behavior.
gross domestic product (GDP) a measure of the value of all the goods and services newly produced in an economy during a specified period of time.
macroeconomics the branch of economics that examines the workings and problems of the economy as a whole—GDP growth and unemployment.
microeconomics the branch of economics that examines individual decision-making at firms and households and the way they interact in specific industries and markets.
mixed economy a market economy in which the government plays a very large role.
negatively related a situation in which an increase in one variable is associated with a decrease in another variable; also called inversely related.
normative economics economic analysis that makes recommendations about economic policy.
positive economics economic analysis that explains what happens in the economy and why, without making recommendations about economic policy.
positively related a situation in which an increase in one variable is associated with an increase in another variable; also called directly related.
relative price the price of a particular good compared to the price of other things.