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Glossary / Key Concepts

The Paradox of Household Income

KEY CONCEPTS FROM THIS VIDEO:

  • Changes in family structure since the 1970s affects how we perceive economic progress and the impact of growth.
  • Measured poverty fell very little in the United States during a time of strong growth. But that measurement may be distorted by changes in the family.
  • Economic growth can make everyone better off but those improvements can be masked if other factors are changing at the same time.
  • The marriage rate has fallen dramatically for the least educated Americans relative to more educated Americans. This adds a disproportionate number of low-income households and can affect how we measure the progress of the middle class and the richest Americans.
  • One way to deal with confounding factors is to follow the same people over time and see how they are doing.
     

TERMS YOU MAY HAVE HEARD IN THIS VIDEO:

Inflation- Inflation is a sustained on-going increase in the general level of the prices of goods and services.

Stagnation - Stagnation occurs when there is a lack of development, advancement, or improvement.

Quintile - One fifth of a sample. For example, if there are 100 people in a sample, each quintile has exactly twenty people.

Middle-Quintile Households - Households that earn more than the bottom 40% and less than the top 40%.

Simpson's Paradox - A trend that appears in different groups but disappears or reverses when those groups are combined. For example, in 1973, Berkeley University's graduate schools' admission rates were investigated when the university was sued by women for the gender gap in admissions. When each school was looked at separately (law, medicine, engineering etc.), women were admitted at a higher rate than men! Across all fields, men were admitted at a higher rate than women, leading to a paradox. Both findings were true because the proportion of the total coming from the individual schools did not stay the same over time.

CPI-U - A Consumer Price Index (CPU), calculated by the Bureau of Labor Statistics, measures the changes in goods and services purchased by urban consumers.

PCE - Personal consumption expenditures (PCE) measure price changes of goods and services. This price index is used by the Congressional Budget Office and Federal Reserve and measured by the Department of Commerce's Bureau of Economic Analysis. It includes both urban and rural consumers and calculates the prices of housing and healthcare differently from the CPI-U. It is a chained index, correcting for consumer substitution toward cheaper goods when prices rise.

The Federal Reserve - The Federal Reserve is the central bank of the United States. It was created by the Congress to provide the nation with a safer, flexible, and stable monetary and financial system. The Federal Reserve conducts the nations' monetary policy to stabilize prices; supervises and regulates banks and other financial institutions to ensure the safety of nation's banking and financial system, as well as the consumers' credit rights; maintains the stability of the financial system; and provides certain financial services to the U.S. government, U.S. financial institutions, and foreign official institutions.

Congressional Budget Office - The Congressional Budget Office (CBO) is a non-partisan agency that analyzes the economy for the U.S. Congress, assists the House and Senate Budget Committees, reviews the President's annual budget, and analyzes the cost of proposed legislation. Please click here for more information.

Department of Commerce - The Department of Commerce promotes American business at home and abroad and gathers economic and demographic data to measure the state of the economy.

The Bureau of Economic Analysis (BEA) is part of the United States Department of Commerce. It produces economic accounts statistics that enable government and business decision-makers, researchers, and the American public to understand the economy.

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