Section 3.1 Measuring Economic Activity Vocabulary

Business cycle

A diagram showing the periodic/cyclical fluctuations in economic activity. The business cycle shows that economies typically move through a pattern of economic growth with the phases: recovery, boom, slowdown, recession

Economic Growth

The growth of the real value of output in an economy over time. Usually measured as growth in real GDP.

Factors of production

The four resources that allow an economy to produce its output: land, labour, capital and entrepreneurship (management).

GDP Deflator

The index value used to eliminate the effect of inflation. Real national income is found by dividing money national income by the GDP deflator and multiplying by 100.

Green GDP

Is an index of economic growth with the environmental consequences of that growth factored into a country's conventional GDP. This type of GDP monetizes the loss of biodiversity, and accounts for costs caused by climate change.

[Nominal] Gross Domestic Product (GDP)

Is the market value of all officially recognized final goods and services produced within a country in a given period. (Not adjusted for inflation.)

[Nominal} Gross National Income (GNI)

Is the total value of goods and services produced by a country per year plus net income earned abroad by its nationals. (Not adjusted for inflation.)

Injections

The investment, government expenditure and export revenues that add spending to the circular flow of income

Leakages

The savings, taxes and import expenditure that remove spending from the circular flow of income.

Per capita

By or for each individual person.

Potential Economic Growth

The total output that the economy could produce if resources were at full employment.

Real GDP

The total money value of all final goods and services produced in an economy in a given time period, usually one year, adjusted for inflation.

Standard of living

The level of wealth, comfort, material goods, and necessity goods available to a certain socioeconomic class in a country.

Transfer Payments

Are payments for which no good or service is exchanged. In other words, money has simply been transferred from one person in society to another. This includes things like benefits, pensions and lottery payments. It makes up a significant proportion of government expenditure.

Circular flow of income model

A model showing the flow of resources from consumers (households) to firms, and the flow of products from firms to consumers, as well as money flows consisting of consumers' income arising from the sale of their resources and firms' revenues arising from the sale of their products.

Economic Development

Is the sustainable increase in living standards for a country, typically characterized by increases in life span, education levels and income.

Sustainable Development

Development that meets the needs of the present without compromising the ability of future generations to meet their own needs.

National income

the total income earned by the factors of production owned by a country's citizens

Purchasing power parity (PPP)

A theory which states that exchange rates between currencies are in equilibrium when their purchasing power is the same in each of the two countries.

Happiness Index

An index which is used to measure the collective happiness and well-being of a population.

OECD Better Life Index (BLI)

An index to compare well-being across countries, based on 11 topics that the OECD has identified as essential, in the areas of material living conditions and quality of life.

Happy Planet Index (HPI)

An index that combines four elements to show how efficiently residents of different countries are using environmental resources to lead long, happy lives. The elements are well-being, life expectancy, inequality of outcomes, and ecological footprint.

Actual economic growth

An increase in real GDP

Macroeconomics

The study of the economy as a whole

Output Approach

Is calculated using by summing the value of sales of goods and adjusting (subtracting) for the purchase of intermediate goods to produce the goods sold.

Income Approach

A method of computing GDP that measures the income-wages, rents, interest, and profits-received by all factors of production in producing final goods and services.

Expenditure Approach

The total spending on all final goods and services (Consumption goods and services (C) + Gross Investments (I) + Government Purchases (G) + (Exports (X) - Imports (M)) GDP = C + I + G + (X-M).

Real GNI

The total money value of all final goods and services produced in an economy in one year, plus net property income from abroad (interest, rent, dividends and profit). Adjusted for inflation.

Real GDP per person (per capita)

Real GDP divided by the population of the country.

Real GNI per person (per capita)

Real GNI divided by the population of the country.

Price deflator

A coefficient that removes the impact of inflation when measuring economic statistics.

Economic well-being

A multi-dimensional concept relating to the level of prosperity and quality of living standards in a country.