Measuring Economic Performance

national accounts

where all nations collect economic data in sum total of a countrys national income and product account

consumer spending

the total spending by all consumers and households on final goods and services produced domestically

disposable income

(gross income - taxes) + govt. transfers decide whatever you want to do with money

investment spending

the total spending by all firms on new physical capital structures and inventories in order to improve productivity and profitability

government spending

the total spending by federal state and local govt on final goods and services produced domestic

net exports

sum difference between foreign spending on exported goods and domestic spending on imported good

gross domestic product

the best and most accurate measurement of a nations economic growth

expenditures approach

the sum of aggregate spending on all final goods and services within a countrys borders in one year

income approach

the sum of aggregate income earned on all inputs used in the product market to make goods and services in one year

value added approach

sum difference between the sale of goods and the value of inputs purchased by all firms

intermediate goods

economic goods bought by one firm from another that are used as inputs in the production of another finished good or service

non market transactions

any transaction that take place outside of the product market including illegal activities or transactions that aren’t supposed to exist

financial transaction

the investment of money into financial assets (stocks and bonds) nothing is being produced

used goods

financial goods and services produced in a preivious year but sold agian in the current year

gross domestic product

counts the value of all final goods and services produced by a nations citizens both domestically and abroad

nominal GDP

the dollar value of all final goods and services produced within a country’s borders in one year expressed in current dollar value

real GDP

the dollar value of all final goods and services produced within a country’s borders in one year expressed in constant dollar value

real GDP per capita

identifies the quantity of goods and services attributed and made available for each member of society

standard of living

the quality of life in a society measured in part by how well an economy is doing taking into account a nations population size

unemployment

biggest obstacle to economic growth a form of productive inefficiency where labor is under utilized as an input

unemployment rate

the number of unemployed over the # in the labor force as a %

labor force

the total # of people in the population who are either working or looking for work sum of all employed and unemployed workers

labor force participation rate

# in the labor force over # of people in the population as a %

frictional unemployment

exists when workers are temporarily unemployed or currently between jobs have transferrible skills

structural unemployment

exists when workers are unemployed because their skills have become obsolete due to fundamental change in labor force

cyclical unemployment

unemployed because their jobs have been lost due to economic contraction

natural rate of unemployment

at any given time 4-6% of the labor force is unavoidably friction ally or structurally unemployed

underemployment

workers who would like to work more hours or are overqualified for their jobs

inflation

general rising of prices in a market or aggregate economy overtime harmful to consumers because it reduces consumer “purchasing power”

deflation

general falling of prices in a market of aggregate economy overtime increases consumers purchasing power

real wages

purchasing power of each dollar earned by workers adjusted for inflation

real income

the percentage change in consumer disposable income adjusted for inflation

quantity theory inflation

occurs when the govt prints excessive amounts currency causing a rise in aggregate price level

demand pull inflation

occurs when there is excessive consumer demand in the economy causing a rise in aggregate price level

cost push inflation

occurs when there is an increase in input prices and products costs causing a rise in aggregate price level

wage price spiral

never ending cycle of inflation in both the product and factor markets

consumer price index

measures changes in the average price of basic consumer goods overtime

producer price index

measures changes in the average price of basic inputs and other resources purchased by firms over time

GDP deflator

a price index that adjusts nominal GDP data to account for changes in price level over time

business cycle

the alternation between downturns and upturns in the macreoeconomy

peak

the highest point of an expansion just before the economy enters a recession and begins to contract

trough

the lowest point of a recession just before the economy enters a recovery and begins to expand

growth trend line

represents a sustainable level of real GDP output that macroeconomy is capa\ble of producing over time

economic recovery

can be identified when real GDP production and employment increases in the macroeconomy

economic recession

can be identified when real GDP production and employment decreases in the macroeconomy

full employment

the economy is producing its potential output while at the natural rate of unemployment (4-6%)

potential output

the economy is producing a level of real GDP output that it is capable of producing in the long run

output gap

the difference between actual output and potential output

private savings

the portion of disposable personal income that individuals or households choose to save rather than spend.

government transfers

A payment made for which no current or future goods or services are required in return. include Social Security benefits, unemployment insurance benefits, and welfare payments. Taxes

financial markets

any place or system that provides buyers and sellers the means to trade financial instruments, including bonds,

inventories

all the items, goods, merchandise, and materials held by a business for selling in the market to earn a profit.

tax revenue

income generated by governments through taxes

inflation rate

he rate of increase in prices over a given period of time.

market basket

a selection of goods and services that are consistently purchased and sold throughout an economic system.

disinflation

a temporary slowing of the pace of price inflation