Economics, Topic 7: Economic Performance and Challenges

national income accounting

a system economists use to collect and organize macroeconomic statistics on production, income, investment, and savings

gross domestic product

the total value of all final goods and services produced in a country in a given year

intermediate goods

products used in the production of final goods

durable goods

those goods that last for a relatively long time, such as refrigerators, cars, and DVD players

nondurable goods

those goods that last a short period of time, such as food, light bulbs, and sneakers

nominal GDP

GDP measured in current prices

real GDP

GDP expressed in constant, or unchanging, prices

gross national product

the annual income earned by a nation's companies and people

depreciation

the loss of the value of capital equipment that results from normal wear and tear

price level

the average of all prices in an economy

aggregate supply

the total amount of goods and services in the economy available at all possible price levels

aggregate demand

the amount of goods and services in the economy that will be purchased at all possible price levels

business cycle

a period of macroeconomic expansion, or growth, followed by a period of contraction, or decline

expansion

a period of economic growth as measured by a rise in real GDP

economic growth

a steady, long-term increase in real GDP

peak

the height of an economic expansion

contraction

an economic decline marked by a falling real GDP

trough

the lowest point in an economic contraction

recession

a prolonged economic contraction

depression

a deep recession with features such as high unemployment and low economic output

stagflation

a decline in real GDP (output) combined with a rise in the price level (inflation)

business investment

investment spending by businesses that creates additional output and jobs, helping to increase GDP and maintain the expansion

leading indicators

a set of key economic variables that economists use to predict future trends in a business cycle

real GDP per capita

real GDP divided by the total population of a country

capital deepening

the process of increasing the amount of capital per worker

saving

income not used for consumption

savings rate

the proportion of disposable income that is saved

technological progress

an increase in efficiency gained by producing more output without using more inputs

capital formation

the accumulation of savings made available for investment

frictional unemployment

type of unemployment that occurs when people take time to find a job

structural unemployment

type of unemployment that occurs when workers' skills do not match those needed for the jobs available

globalization

the increasingly tight interconnection of producers, consumers, and financial systems around the world

seasonal unemployment

type of unemployment that occurs as a result of harvest schedules, vacations, or when industries make seasonal shifts in their production schedules

cyclical unemployment

unemployment that rises during economic downturns and falls when the economy improves

unemployment rate

the percentage of a nation's labor force that is unemployed

full employment

the level of employment reached when there is no cyclical unemployment

underemployed

working at a job for which one is overqualified, or working part time when full-time work is desired

discouraged worker

someone who wants a job but has given up looking

inflation

a general increase in prices across an economy

purchasing power

the ability to purchase goods and services

price index

a measurement that shows how the average price of a standard group of goods changes over time

Consumer Price Index

a price index determined by measuring the price of a standard group of goods meant to represent the "market basket" of a typical urban consumer

market basket

a representative collection of goods and services

inflation rate

the percentage rate of change in price level over time

core inflation rate

the rate of inflation excluding the effects of food and energy prices

hyperinflation

inflation that is out of control

quantity theory

the theory that too much money in the economy causes inflation

wage-price spiral

the process by which rising wages cause higher prices, and higher prices cause higher wages

fixed income

income that does not increase even when prices go up

deflation

a sustained drop in the price level

poverty threshold

an income level below that which is needed to support families or households

poverty rate

the percentage of people who live in households with income below the official poverty line

income distribution

the way in which a nation's total income is distributed among its population

food stamp program

a government program that helps low-income people buy food

Lorenz Curve

the curve that illustrates income distribution

enterprise zone

an area where businesses can locate free of certain local, state, and federal taxes and restrictions

block grants

federal funds given to the states in lump sums

workfare

a program requiring work in exchange for temporary government assistance

welfare

government aid to the poor

cash transfers

direct payments of money by the government to people who are poor, disabled, or retired

in-kind benefits

goods and services provided for free or at greatly reduced prices

medical benefits

health insurance provided by the government for children and people who are elderly, disabled, or poor

grant

a financial award given by a government agency to a private individual or group in order to carry out a specific task