Topic 7 - Economic Performance and Challenges

Gross Domestic Product

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

National Income Accounting

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

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 total 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 contraction, or decline 

Expansion

A period of economic growth as measured by a rise in 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) combines 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 country

Capital Deepening

The process of increasing the amount of capital per worker

Saving

Income not used for consumption

Saving 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 lobor force that is unemployed

Full employment

The level of employment reached when there is no cyclical unemployment

Underemployment

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 a "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

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 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

Supplemental Nutrition Assistance Program (SNAP)

A federal government program that provides food benefits to low-income families to help avoid food insecurity and purchase nutritious food

Block Grants

Fixed sums of money that the federal government gives to state or local governments, with broad discretion on how to use the funds within general guidelines (like TANF)

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 a greatly reduced prices

Medical Benefits

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

Income Inequality

The unequal distribution of household or individual income across the various participants in an economy

Poverty Trap

Self-reinforcing mechanisms that cause the poor to stay poor

Temporary Assistance for Needy Families (TANF)

A federally funded, state-administered program that provides cash assistance and services to low-income families with children

Earned Income Tax Credit (EITC)

A Refundable federal tax credit for low- to moderate-income workers; reduces poverty and encourages work.

Cost-Puch Inflation

A sustained rise in the price level caused by a leftward shift of the aggregate supply curve

Demand-Pull Inflation

A sustained rise in the price level caused by a rightward shift of the aggregate demand curve

Natural Rate of Unemployment

The normal rate of unemployment, consisting of frictional unemployment and structural unemployment; it is between 4-6% for the US

Labor Force 

The total number of workers, including both the employed and the unemployed