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National income and product accounts
Accounts that keep track of the flows of money among different sectors of the economy.
Product Markets
Markets where goods and services are bought and sold.
Consumer spending
Households spending on goods and services.
Factor markets
Markets where resources, especially capital and labor, are bought and sold.
Government spending
Total expenditures on goods and services by federal, state, and local governments.
Taxes
Required payments to the government.
Tax revenue
The total amount the government receives from taxes.
Disposable income
Income plus government transfers minus taxes; the total amount of household income available for consumption.
Government transfers
Payments that the government makes to individuals without expecting a good or service in return.
Private savings
Equal to disposable income minus consumer spending; a household’s disposable income.
Financial markets
Channels private savings into investment spending and government borrowing.
Government borrowing
The amount of funds borrowed by the government in the financial market.
Investment spending
Spending on new productive physical capital, such as machinery and structures, and changes in inventories.
Inventories
Stocks of goods and raw materials held to facilitate business operations.
Exports
Goods and services sold to other countries.
Imports
Goods and services purchased from other countries.
Gross domestic product (GDP)
Total value of all final goods and services produced in a year.
Expenditure approach
Calculating GDP using the sum of consumer spending, investment spending, government purchases, and exports minus imports.
Aggregate spending
Sum of consumer spending, investment spending, government purchases, and exports minus imports.
Income approach
Adds up total factor income earned by households from firms in the economy, including rent, wages, interest, and profit.
Value added approach
Surveys firms and adds up their contribution to the value of final goods and services.
Final goods and services
Goods or services that are sold to the final consumer.
Intermediate goods and services
Goods and services bought from one firm by another firm to be used as inputs into the production of final goods and services.
Net exports
The difference between the value of exports and the value of imports (X-M).
Value added
The value of sales minus the value of its purchases of inputs.
Nonmarket transactions
Goods and services that are not bought and sold in a legal market.
Employed people
People who are currently holding a job in the economy, either full time or part time.
Unemployed
People who are actively looking for work but aren’t currently employed.
Labor force
The sum of the employed and the unemployed.
Labor force participation rate
The percentage of the population aged 16 or older that is in the labor force.
Unemployment rate
The percentage of the total number of people in the labor force who are unemployed.
Discouraged workers
Non-working people capable of working who have given up looking for a job due to the state of the job market.
Underemployed
Workers who would like to work more hours or who are overqualified for their jobs.
Frictional unemployment
Unemployment due to the time workers spend in the job search.
Structural unemployment
Unemployment resulting when workers lack the skills required for available jobs.
Natural rate of unemployment
Unemployment rate arising from the effects of frictional plus structural unemployment.
Cyclical unemployment
Deviation of the actual rate of unemployment from the natural rate.
Inflation
Rise in overall price level.
Deflation
Falling in overall price level.
Price stability
When the overall price level is changing only slowly if at all.
Real wage
Wage rate divided by the price level to adjust for inflation.
Real income
Income divided by the price level to adjust for inflation.
Inflation rate
The percentage increase in the overall levels of prices per year.
Aggregate price level
A measure of the overall level of prices in the economy.
Market basket
A hypothetical set of consumer purchases of goods and services.
Base year
The year chosen for comparison when calculating a price index.
Price index
Measures the cost of purchasing a given market basket in a given year.
Consumer price index
Measures the cost of a market basket for a typical urban American family.
Substitution bias
Occurs in the CPI due to households substituting away from items with rising prices.
Producer price index (PPI)
Measures the prices of goods and services purchased by producers.
Nominal interest rate
Interest rate actually paid for a loan.
Real interest rate
Nominal interest rate minus the rate of inflation.
Disinflation
The process of bringing the inflation rate down.
Aggregate output
The total quantity of final goods and services produced within an economy.
Real GDP
The total value of all final goods and services produced in the economy during a given year, adjusted for price changes.
Nominal GDP
The total value of all final goods and services produced in the economy calculated with current year prices.
GDP Deflator
100 times the ratio of nominal GDP to real GDP in that year.
GDP per capita
GDP divided by the size of the population; equivalent to the average GDP per person.
Business cycle
The alternation between economic downturns and economic upturns.
Recessions
Periods of economic downturns when output and employment are failing.
Trough
Low minimum in the business cycle.
Expansions
Periods of economic upturns when output and employment are rising.
Peak
High maximum in the business cycle.
Depression
A very deep and prolonged economic downturn.
Economic growth
An increase in the maximum amount of goods and services an economy can produce.
Full employment level of output
Level of real GDP that the economy can produce if all resources are fully employed.
Potential output
The level of real GDP the economy would produce if all prices were flexible.
Output gap
The difference between actual output and potential output.
