Econ Business cycle

Factor Market

The market where factors of production (land, labor, capital, entrepreneurship) are bought and sold; households supply resources and firms demand them.

Product Market

The market where goods and services produced by firms are sold to households, government, and foreign buyers.

Full Employment Output

The level of real GDP an economy can produce when it is using resources efficiently, with only frictional and structural unemployment present (no cyclical unemployment).

Potential Output

The maximum sustainable output an economy can produce without causing inflation to rise, essentially the same as full employment output.

Intermediate Goods

Goods used as inputs in the production of final goods and services; not counted in GDP to avoid double counting.

Consumer Price Index (CPI)

A measure of the average change in prices paid by consumers for a fixed “market basket” of goods and services over time; commonly used to track inflation.

Multiple Counting

The error of including the value of intermediate goods along with final goods in GDP, which would artificially inflate GDP.

GDP Deflator

A price index that measures the change in prices of all final goods and services produced domestically; calculated as (Nominal GDP ÷ Real GDP) × 100.

Net Exports

The value of a country’s exports minus its imports (NX = Exports – Imports); can be positive (trade surplus) or negative (trade deficit).

Price Index

A measurement tool that shows how the average price of a group of goods changes over time compared to a base year.

Cyclical Unemployment

Unemployment caused by downturns in the business cycle (e.g., recessions).

Structural Unemployment

Unemployment caused by mismatches between workers’ skills and the needs of employers, or by changes in technology or geography.

Frictional Unemployment

Short-term unemployment that occurs when people are between jobs or entering the labor force.

Labor Force

The total number of people 16 and older who are either employed or actively seeking employment (not including discouraged workers, retirees, or students not looking for work).