macro unit 3

National income and product accounts (national accounts)

Keep track of the flows of money among different sectors of the economy.

Product markets

Places where goods and services are bought and sold.

Consumer spending

Household spending on goods and services.

Factor markets

Markets where resources, especially capital and labor, are bought and sold.

Government spending

Total expenditures on goods and services by federal, state, and local governments.

Taxes

Required payments to the government.

Tax revenue

Total amount of funds the government receives from taxes.

Disposable income

Total amount of household income available to spend on consumption, equal to income plus government transfers minus taxes.

Government transfers

Payments made by the government to individuals without expecting a good or service in return.

Private savings

Household’s disposable income that is not spent on consumption, equal to disposable income minus consumer spending.

Financial markets

Markets that channel private savings into investment spending and government borrowing.

Government borrowing

Amount of funds borrowed by the government in the financial markets.

Investment spending

Spending by firms on new productive physical capital, such as machinery and structures.

Inventories

Stocks of goods and raw materials held to facilitate business operations.

Exports

Goods and services sold to other countries.

Imports

Goods and services purchased from other countries.

GDP

Total value of all final goods and services produced in the economy during a given year.

Expenditure approach

Calculating GDP by adding up aggregate spending on domestically produced final goods and services.

Income approach

Calculating GDP by adding up total factor income earned by households from firms.

Value added approach

Calculating GDP by surveying firms and adding up their contributions to the value of final goods and services.

Final goods

Goods and services sold to the final, or end, user.

Intermediate goods

Goods and services used as inputs in the production of final goods.

Net exports

Difference between the value of exports and the value of imports, denoted as (X-M).

Value added

Value of a producer's sales minus the value of its purchases of inputs.

Circular flow diagram

A simplified representation of the economy showing the flows of goods/services and payments.

Disposable income calculation

Disposable income is equal to income plus government transfers minus taxes.

Frictional unemployment

Unemployment due to the time workers spend in job search.

Structural unemployment

Unemployment resulting from workers lacking skills for available jobs.

Cyclical unemployment

Deviation of the actual rate of unemployment from the natural rate due to economic cycles.

Inflation

A rising overall price level.

Deflation

A falling overall price level.

Real wages

Wage rate adjusted for the price level.

Aggregate demand curve

Shows the relationship between aggregate price level and quantity of aggregate output demanded.

Marginal propensity to consume (MPC)

Increase in consumer spending when disposable income rises by $1.

Expenditure multiplier

Ratio of total change in real GDP caused by autonomous change in aggregate spending to size of that change.

Nominal wage

Dollar amount of the wage paid.

Long-run aggregate supply curve

Shows relationship between aggregate price level and quantity of aggregate output when all prices are flexible.

Fiscal Policy

Use of government purchases, transfers, or tax policy to stabilize the economy.

Expansionary fiscal policy

Increases aggregate demand to close a recessionary gap.

Contracting fiscal policy

Decreases aggregate demand to close an inflationary gap.

Automatic stabilizers

Government spending and taxation rules that cause fiscal policy to be automatically expansionary or contractionary.

Stagflation

Combination of inflation and stagnation in aggregate output.