Chapter 6-9 Macro

Nominal Gross Domestic Product (GDP)

GDP measured in terms of the price level at the time of measurement; GDP not adjusted for inflation. Compare with real gross domestic product (real GDP).

nominal gross domestic product (GDP)

GDP measured in terms of the price level at the time of measurement; GDP not adjusted for inflation. Compare with real gross domestic product (real GDP).

Inventory

Goods that have been produced but remain unsold.

Real (GDP)

Gross domestic product adjusted for inflation; gross domestic product in a year divided by the GDP price index for that year, the index expressed as a decimal. Compare with nominal GDP.

Real Interest Rate

The interest rate expressed in dollars of constant value (adjusted for inflation) and equal to the nominal interest rate less the expected rate of inflation.

Nominal Interest Rate

The interest rate expressed in terms of annual amounts currently charged for interest and not adjusted for inflation.

Human Capital

The knowledge and skills that make a person productive.

Expenditures Approach

The method that adds all expenditures made for final goods and final services to measure the gross domestic product.

Income Approach

The method that adds all the income generated by the production of final goods and final services to measure the gross domestic product.

Nominal Income

The number of dollars received by an individual or group for its resources during some period of time.

Unemployment Rate

The percentage of the labor force unemployed at any time.

Labor-Force Participation Rate

The percentage of the working-age population that is actually in the labor force.

Expansion

The phase of the business cycle in which real GDP, income, and employment rise.

Peak

The point in a business cycle at which business activity has reached a temporary maximum; the point at which an expansion ends and a recession begins. At the peak, the economy is near or at full employment and the level of real output is at or very close to the economy's capacity.

Gross Domestic Product (GDP)

The total market value of all final goods and final services produced annually within the boundaries of a nation.

Core Inflation

The underlying increases in the price level after volatile food and energy prices are removed.

full-employment rate of Unemployment

The unemployment rate at which there is no cyclical unemployment of the labor force; equal to between 4 & 5 percent (rather than zero percent) in the United States because frictional and structural unemployment are unavoidable.

Value Added

The value of a product sold by a firm less the value of the products (materials) purchased and used by the firm to produce that product.

Base Year

The year with which other years are compared when an index is constructed; for example, the base year for a price index.

Price Index

An index number that shows how the weighted-average price of a "market basket" of goods changes over time relative to its price in a specific base year.

Consumer Price Index (CPI)

An index that measures the prices of a fixed "market basket" of some 300 goods and services bought by a "typical" consumer.

Follower Countries

As it relates to economic growth, countries that adopt advanced technologies that previously were developed and used by leader countries.

Leader Countries

As it relates to economic growth, countries that develop and use the most advanced technologies, which then become available to follower countries.

Frictional Unemployment

A type of unemployment caused by workers voluntarily changing jobs and by temporary layoffs; unemployed workers between jobs.

Unanticipated Inflation

An increase of the price level (inflation) at a rate greater than expected.

Information Technology

New and more efficient methods of delivering and receiving information through the use of computers, Wi-Fi networks, wireless phones, and the Internet.

Disposable Income (DI)

Personal income less personal taxes; income available for personal consumption expenditures and personal saving.

Labor Force

Persons 16 years of age and older who are not in institutions and who are employed or are unemployed and seeking work.

Flexible Prices

Product prices that freely move upward or downward when product demand or supply changes.

Inflexible Prices

Product prices that remain in place (at least for a while) even though supply or demand has changed; stuck prices or sticky prices.

Intermediate Services

Products that are purchased for resale or further processing or manufacturing.

Final goods and services

Products that have been purchased for final use (rather than for resale or further processing or manufacturing.)

Business Cycle

Recurring increases and decreases in the level of economic activity over periods of years; consists of peak, recession, trough, and expansion phases.

Expectations

The anticipations of consumers, firms, and others about future economic conditions.

Increasing Returns

An increase in a firm's output by a larger percentage than the percentage increase in its inputs.

Economic Growth

(1) An outward shift in the production possibilities curve that results from an increase in resource supplies or quality or an improvement in technology; (2) an increase of real output (gross domestic product) or real output per capita.

Non-Durable Good

A consumer good with an expected life (use) of less than three years.

Durable Goods

A consumer good with an expected life (use) of three or more years.

Deflation

A decline in the general level of prices in an economy; a decline in an economy's price level.

rule 70

A method for determining the number of years it will take for some measure to double, given its annual percentage increase. Example: To determine the number of years it will take for the price level to double, divide 70 by the annual rate of inflation.

Taxes on Production and Imports

A national income accounting category that includes such taxes as sales, excise, business property taxes, and tariffs that firms treat as costs of producing a product and pass on (in whole or in part) to buyers by charging a higher price.

Start-Up Firms

A new firm focused on creating and introducing a particular new product or employing a specific new production or distribution method.

Recession

A period of declining real GDP, accompanied by lower real income and higher unemployment.

Inflation

A rise in the general level of prices in an economy; an increase in an economy's price level.

Cyclical Unemployment

A type of unemployment caused by insufficient total spending (insufficient aggregate demand) and which typically begins in the recession phase of the business cycle.

Learning By Doing

Achieving greater productivity and lower average total cost through gains in knowledge and skill that accompany repetition of a task; a source of economies of scale.

Service

An (intangible) act or use for which a consumer, firm, or government is willing to pay.

Cost-of-living Adjustments (COLAs)

An automatic increase in the incomes (wages) of workers when inflation occurs; often included in collective bargaining agreements between firms and unions. Cost-of-living adjustments are also guaranteed by law for Social Security benefits and certain other government transfer payments.

Consumption on Fixed Capital

An estimate of the amount of capital worn out or used up (consumed) in producing the gross domestic product; also called depreciation.

Hyperinflation

An extremely high rate of inflation, usually defined as an inflation rate in excess of 50 percent per month.

Savings

Disposable income not spent for consumer goods; equal to disposable income minus personal consumption expenditures; saving is a flow. Compare with savings.

Discouraged Workers

Employees who have left the labor force because they have not been able to find employment.

Government Purchases

Expenditures by government for goods and services that government consumes in providing public services as well as expenditures for publicly owned capital that has a long lifetime; the expenditures of all governments in the economy for those final goods and final services.

Gross Private Domestic Investment (IG)

Expenditures that increase the nation's stock of capital, which is the collection of physical objects and intangible ideas that help to produce goods and services. Includes spending on final purchases of plant, machinery, and equipment by business enterprises; residential construction; changes in inventories; expenditures on the research and development (R&D) of new productive technologies; and money spent on the creation of new works of art, music, writing, film, and software.

Investment

Expenditures that increase the volume of physical capital (roads, factories, wireless networks) and intangible ideas (formulas, processes, algorithms) that help to produce goods and services. Also known as economic investment. Not to be confused with financial investment.

Net Exports

Exports minus imports.

real gross domestic product (GDP)

Gross domestic product adjusted for inflation; gross domestic product in a year divided by the GDP price index for that year, the index expressed as a decimal. Compare with nominal GDP.

Net Domestic Products (NDP)

Gross domestic product less the part of the year's output that is needed to replace the capital goods worn out in producing the output; the nation's total output available for consumption or additions to the capital stock.

Net Private Domestic Investment

Gross private domestic investment less consumption of fixed capital; the addition to the nation's stock of capital during a year.

Cost-push Inflation

Increases in the price level (inflation) resulting from an increase in resource costs (for example, raw-material prices) and hence in per-unit production costs; inflation caused by reductions in aggregate supply.

Demand-pull Inflation

Increases in the price level (inflation) resulting from increases in aggregate demand.

Anticipated Inflation

Increases in the price level (inflation) that occur at the expected rate.

Network Effects

Increases in the value of a product to each user, including existing users, as the total number of users rises.

Real GDP per Capita

Inflation-adjusted output per person; real GDP/population.

Economic Investment

Spending for the production and accumulation of capital, additions to inventories, or the research and development of new goods or services, including funds spent on the creation of new works of music, literature, or software. (For contrast, see financial investment.)

Supply Shocks

Sudden, unexpected changes in aggregate supply.

Shocks

Sudden, unexpected changes in demand (or aggregate demand) or supply (or aggregate supply).

Demand Shocks

Sudden, unexpected changes in demand.

Real Income

The amount of goods and services that can be purchased with nominal income during some period of time; nominal income adjusted for inflation.

Per-unit Production Cost

The average production cost of a particular level of output; total input cost divided by units of output.

Growth Accounting

The bookkeeping of the supply-side elements such as productivity and labor inputs that contribute to changes in real GDP over some specific time period.

Efficiency Factor(In Growth)

The capacity of an economy to achieve allocative efficiency and productive efficiency and thereby fulfill the potential for growth that the supply factors (of growth) make possible; the capacity of an economy to achieve economic efficiency and thereby reach the optimal point on its production possibilities curve.

Gross Output (GO)

The dollar value of the economic activity taking place at every stage of production and distribution. By contrast, gross domestic product (GDP) only accounts for the value of final output.

Personal Income (PI)

The earned and unearned income available to resource suppliers and others before the payment of personal taxes.

Personal Consumption Expenditures (C)

The expenditures of households for both durable and nondurable consumer goods.

Unemployment

The failure to use all available economic resources to produce desired goods and services; the failure of the economy to fully employ its labor force.

Supply Factor(In Growth)

The four determinants of an economy's physical ability to achieve economic growth by increasing potential output and shifting out the production possibilities curve. The four determinants are improvements in technology plus increases in the quantity and quality of natural resources, human resources, and the stock of capital goods.

Natural Rate of Unemployment (NRU)

The full-employment rate of unemployment; the unemployment rate occurring when there is no cyclical unemployment and the economy is achieving its potential output; the unemployment rate at which actual inflation equals expected inflation.

Okun's Law

The generalization that any 1-percentage-point rise in the unemployment rate above the full-employment rate of unemployment is associated with a rise in the negative GDP gap by 2 percent of potential output (potential GDP).

Modern Economic Growth

The historically recent phenomenon in which nations for the first time have experienced sustained increases in real GDP per capita.

Infrastructure

The interconnected network of large-scale capital goods (such as roads, sewers, electrical grids, railways, ports, and the Internet) needed to operate a technologically advanced economy.

Trough

The point in a business cycle at which business activity has reached a temporary minimum; the point at which a recession ends and an expansion (recovery) begins. At the trough, the economy experiences substantial unemployment and real GDP is less than potential output.

Financial Investment

The purchase of a financial asset (such as a stock, bond, or mutual fund) or real asset (such as a house, land, or factories) in the expectation of financial gain.

Catch-up Growth

The rapid increases in real GDP per capita that can be achieved when a poor follower country adopts, rather than reinvents, cutting edge technologies that took leader countries decades to invent and implement.

GDP Gap

The real output (GDP) an economy can produce when it fully employs its available resources.

Potential Output

The real output (GDP) an economy can produce when it fully employs its available resources.

Demand Factor (In growth)

The requirement that aggregate demand increase as fast as potential output if economic growth is to proceed as quickly as possible.

Economies of Scale

The situation when a firm's average total cost of producing a product decreases in the long run as the firm increases the size of its plant (and, hence, its output).

National Income Accounting

The techniques used to measure the overall production of a country's economy as well as other related variables.

National Income

Total income earned by resource suppliers for their contributions to gross domestic product plus taxes on production and imports; the sum of wages and salaries, rent, interest, profit, proprietors' income, and such taxes.

Labor Productivity

Total output divided by the quantity of labor employed to produce it; the average product of labor or output per hour of work.

Structural Unemployment

Unemployment of workers whose skills are not demanded by employers, who lack sufficient skill to obtain employment, or who cannot easily move to locations where jobs are available.

Multiple Counting

Wrongly including the value of intermediate goods in the gross domestic product; counting the same good or service more than once.