Macroeconomics - Chapter 8

Interest

(i) A payment, per unit of time, for the use of borrowed money (borrowers pay interest, lender receive interest). (ii) A payment, per unit of time, to owners of capital resources.

Gross national income (GNI)

A measure of the total income received by the residents of a country, equal to the value of all final goods and services produced by the factors of production supplied by the country's residents regardless of where the factors are located; GNI= GDP plus income from abroad minus income sent abroad. Formerly known as gross national product (GNP); may be contrasted with gross domestic product (GDP).

Gross domestic product (GDP)

A measure of the value of aggregate output of an economy, it is the market value of all final goods and services produced within a country during a given time period (usually a year); it is a commonly used measure of the value of aggregate output; to be contrasted with gross national income (GNI).

Expenditure approach

A method used to measure the value of aggregate output of an economy, which adds up all spending on final goods and services produced within a country within a given time period. As suggested by the circular flow model, it is equivalent to measurement by the income approach and the output approach.

Output approach

A method used to measure the value of aggregate output of an economy, which calculates the value of all final goods and services produced in the country within a given time period. As suggested by the circular flow model, it is equivalent to measurement by the expenditure approach and the income approach.

Income approach

A method used to measure the value of aggregate output of an economy; which adds up all income earned by the factors of production in the course of prodding all goods and services within a country in a given time period. As suggested by the circular flow model, it is equivalent to measurement by the expenditure approach and the output approach.

Circular flow of income model

A model showing the flow of resources from consumers (households) to firms, and the flow of products from firms to consumers, as well as money flows consisting of consumer' income arising from the sale of their resources and firms' revenues arising from the sale of their product. It illustrates the equivalence of expenditure flows, value of output flows, and income flows.

Profit

A payment, per unit of time, to owners of entrepreneurship/ management (a factor of production). See economic profit and normal profit.

Rent

A payment, per unit of time, to owners of land resources who supply their land to the production process.

Wage

A payment, per unit of time, to those who provide labour; this includes all wages and salaries, as well as supplements (such as bonuses and commissions).

Recession

An economic contraction, where there is falling real GDP (negative growth) and increasing unemployment of resources which last six months or more.

Open economy

An economy that has international trade: (imports and exports) usually appears in connection with economic theories and models as virtually all economies in the real world are open economies (though to varying degrees). To be contrasted with closed economy.

Closed economy

An economy that has no international trade (no imports and exports); usually appears in connection with economic theories and models as virtually no economy in the real world is a closed economy. To be contrasted with open economy.

Business cycle

Fluctuations in the growth of real output, or real GDP, consisting of alternating periods of expansion (increasing real output) an contraction (decreasing real output); also known as trade cycles.

Green GDP

Gross domestic product (GDP) which has been adjusted to take into account environmental destruction and/or health consequences of environmental problems.

Nominal GDP

Gross domestic product measured in terms of current (or nominal) prices, which are prices prevailing at the time of measurement. Does not account for changes in the price level; to be distinguished from real GDP.

Long term growth trend

In the business cycle diagram, refers to the line that runs through the business cycle curve representing average growth over long periods of time; shows how output grows over time when cyclical fluctuations are ironed out. The output represented by the long-term growth trend is known as potential output.

Injections

In the circular flow of income model refers to the entry into income flow of funds corresponding to investment, government spending or exports.

Leakages

In the circular flow of income model, refer to the withdrawal from the income flow of funds corresponding to savings, taxes or imports; also known as 'withdrawals'.

Value of output flow

In the circular flow of income model, refers to the value of output that is sold by firms and purchased by consumers, which is equal to the expenditure flow and the income flow.

Income

In the current account of the balance of payments, refers to inflows of wages, rents, interest and profits earned abroad minus the same income factors that are sent abroad.

Expenditure flow

In the simple circular flow of income model, it is the flow of spending from households to firms to buy the goods and services produced by the firms; the expenditure flow is equal to the income flow and the value of output flow.

Income flow

In the simple circular flow of income model, refers to the flow of income of households that they receive by selling their factors of production (resources) to firms; the income flow is equal to the expenditure flow and the value of output flow.

Per capita

Per person, or per head. For example, GDP per capita is total GDP divided by the number of people in the population.

Consumption

Spending by households (consumers) on goods and services (excludes spending on housing).

National income statistics

Statistical data used to measure an economy's national income and output as well as other measures of economic performance.

Macroeconomics

The branch of economics that examines the economy as a whole by use of aggregates, which are wholes or collections of many individual units, such as the sum of consumer behaviors and the sum of firm behaviors, total income and output of the entire economy as well as total employment and the general price level.

Potential output (potential GDP)

The level of output (real GDP) that can be produced when there is 'full employment', meaning that unemployment is equal o the natural rate of unemployment; also known as the full employment level of output.

National income

The total income of an economy, often used interchangeably with the value of aggregate output, particularly in the context of macroeconomic models (such as the AD-AS model)

Real value

Value that has eliminated the influence of changes in the price level.

Nominal value

Value that is in money terms, measure in terms of prices that prevail at the time of measurement, and that does not account for changes in the price level; to be distinguished from real values.

Price deflator

a price index used to calculate real GDP from nominal GDP; better known as the "GDP deflator".