Unit 2 Vocab

National Income and Product Accounts

A system that measures a country’s overall economic activity, including GDP, income, and spending

National Accounts

Records that track the flow of money and goods between households, firms, government, and the rest of the world

Household

Individuals or families who supply labor and consume goods and services

Firm

A business that produces goods or services and hires labor

Product Markets

Markets where goods and services are bought and sold

Factor Markets

Markets where factors of production (labor, land, capital) are bought and sold

Financial Markets

Markets where savings are turned into investment through stocks, bonds, and loans

Consumer Spending

Money households spend on goods and services

Investment Spending

Spending by firms on capital goods (equipment, factories) and changes in inventories

Government Purchase of Goods and Services

Government spending on goods/services (not transfers)

Government Transfers

Payments by the government to individuals without receiving goods/services in return (e.g., Social Security)

Exports

Goods and services produced domestically and sold abroad

Imports

Goods and services produced abroad and bought domestically

Aggregate Spending

Total spending in the economy (C + I + G + X − M)

Disposable Income

Income households have after taxes

Private Savings

Disposable income minus consumer spending

Stock

A share of ownership in a firm

Bond

A loan made to a firm or government that pays interest

Government Borrowing

When government runs a budget deficit and issues bonds

Final Goods and Services

Goods/services bought by the final user

Intermediate Goods and Services

Goods used to produce other goods

Inventories

Unsold goods firms keep in storage

Value Added

The increase in value a firm adds to a product

Gross Domestic Product (GDP)

Total value of all final goods and services produced within a country in a year

Aggregate Output

Total quantity of goods and services produced in an economy

Net Exports

Exports minus imports

Real GDP

GDP adjusted for inflation

• Equation: (nominal GDP/(price index/100)) x 100

Nominal GDP

GDP measured using current prices

• Equation: (Price Current Year x Quantity Current Year)

Chain-linking

A method of calculating real GDP that adjusts for changing prices and consumption patterns

GDP Per Capita

GDP divided by population; average standard of living

Employed

People working for pay or profit

Unemployed

People without jobs who are actively looking for work

Labor Force

Employed + unemployed

Labor Force Participation Rate

Labor force ÷ adult population

Unemployment Rate

Unemployed ÷ labor force

Discouraged Worker

Someone who stopped looking for work because they believe no jobs are available

Marginally Attached Workers

People willing to work who have looked for a job recently but not currently

Underemployed

Workers employed less than desired or below their skill level

Job Search

Process of matching workers with jobs

Frictional Unemployment

Short-term unemployment while changing jobs

Structural Unemployment

Unemployment due to changes in the economy that make skills obsolete

Cyclical Unemployment

Unemployment caused by economic downturns

Natural Rate of Unemployment

Frictional + structural unemployment

Efficiency Wages

Wages paid above equilibrium to increase productivity and reduce turnover

Real Wage

Wage adjusted for inflation

Real Income

Income adjusted for inflation

Inflation Rate

Percentage increase in the overall price level

Shoe-leather Costs

Costs of holding less cash due to inflation

Menu Costs

Costs to firms of changing prices

Unit-of-Account Costs

Confusion caused when inflation distorts prices

Nominal Interest Rate

Interest rate without adjusting for inflation

Real Interest Rate

Nominal rate minus inflation

Disinflation

A decrease in the rate of inflation

Aggregate Price Level

Overall level of prices in the economy

Market Basket

A set of goods and services used to measure inflation

• Equation: (Current Price x Base Year Quantity)

Price Index

A measure showing how prices change over time

Consumer Price Index (CPI)

Measures price changes for goods/services consumers buy

• Equation: (Current Cost/Base Cost) x 100

Producer Price Index (PPI)

Measures price changes for goods/services producers sell

GDP Deflator

Measures price changes for all goods/services in GDP