Measuring a Nation's Income - Macroeconomics Vocabulary

Vocabulary flashcards covering fundamental definitions, equations, and components of Gross Domestic Product from Chapter 10 of Mankiw's Principles of Macroeconomics.

Microeconomics

The study of how households and firms make decisions and interact in markets.

Macroeconomics

The study of economy-wide phenomena, including inflation, unemployment, and economic growth.

Gross Domestic Product (GDP)

The market value of all final goods and services produced within a country in a given period of time.

Circular-Flow Diagram

A visual model of the economy that illustrates how dollars flow through markets among households and firms.

GDP Identity

The equation $Y = C + I + G + NX$, which states that total expenditure ($Y$) equals consumption ($C$) plus investment ($I$) plus government purchases ($G$) plus net exports ($NX$).

Consumption ($C$)

Spending by households on goods and services, including durable goods, nondurable goods, and intangibles like education, but excluding purchases of new housing.

Investment ($I$)

The purchase of capital goods used to produce other goods and services in the future, including business capital, residential capital, and inventory accumulation.

Government Purchases ($G$)

Expenditure and gross investment on goods and services by local, state, and federal governments, excluding transfer payments.

Net Exports ($NX$)

Exports minus imports, representing spending on domestically produced goods by foreigners minus spending on foreign goods by domestic residents.

Nominal GDP

The production of goods and services valued at current prices.

Real GDP

The production of goods and services valued at constant prices from a designated base year.

GDP Deflator

A measure of the price level relative to the base year, calculated as $\frac{\text{Nominal GDP}}{\text{Real GDP}} \times 100$.

Inflation

A situation in which the economy's overall price level is rising.

Inflation Rate

The percentage change in a measure of the price level from one period to the next.

Recession

A period of economic downturn defined by two consecutive quarters of falling real GDP, accompanied by lower income, rising unemployment, falling profits, and increased bankruptcies.

Transfer Payments

Government payments made not in exchange for a currently produced good or service, which are excluded from government purchases ($G$).