Chapter 4

National Product

The overall level of economic activity in a nation, measured as the value of total production of goods and services.

Nominal National Income

Total national income measured in current dollars, reflecting current prices and quantities.

Real National Income

The value of national income measured at constant prices, removing the effects of inflation.

Gross Domestic Product (GDP)

The total value of all goods and services produced in an economy, can be measured in nominal or real terms.

Business Cycle

The fluctuations in economic activity characterized by phases of expansion and contraction.

Trough

The lowest point of the business cycle, where economic activity is at its lowest and resources are underutilized.

Peak

The highest point of the business cycle, indicating maximum output and employment.

Recessionary Gap

Occurs when actual output is less than potential output, indicating underutilization of resources.

Inflationary Gap

Occurs when actual output exceeds potential output, leading to upward pressure on wages and prices.

Frictional Unemployment

Short-term unemployment arising from the normal turnover in the labor market.

Structural Unemployment

Long-term unemployment resulting from a mismatch between skills and job opportunities.

Cyclical Unemployment

Unemployment related to the downturns in the business cycle.

Productivity

A measure of output produced per unit of input, critical for economic growth.

Price Level

The average level of all prices in an economy, often measured with price indices.

Consumer Price Index (CPI)

A measure that examines the average change over time in the prices paid by consumers for a basket of goods and services.

Interest Rate

The price paid to borrow money, expressed as a percentage of the loan amount.

Exchange Rate

The amount of domestic currency needed to purchase one unit of foreign currency.

Potential Output

The level of output an economy can sustain when fully utilizing all resources.

Output Gap

The difference between potential output and actual output.

Full Employment

A situation in which all available labor resources are being used in the most efficient way possible.

NAIRU

Non-Accelerating Inflation Rate of Unemployment; the lowest unemployment rate at which inflation does not increase.

Fiscal Policy

Government policy that uses spending and taxation to influence the economy.

Monetary Policy

The process by which the central bank controls the money supply, interest rates, and inflation.

National Income

Total income earned by a nation's residents in the production of goods and services.

Short-Term Fluctuations

Variations in economic activity and output that occur in the short run due to changing factors.

Long-Term Economic Growth

Sustained upward trend in the national income over time.

Output Per Capita

A measure of economic output that accounts for the number of people in the economy.

Balance of Payments (BOP)

A record of all economic transactions between residents of a country and the rest of the world.