Unit 3 (3.1) Macroeconomics

Growth in production possibilities

When the production possibility of a country increases because of more/better resources and/or better technology becoming available; illustrated by a shift outwards of the PPC

Actual growth

Occurs when the real output (real GDP) increases through time and is a result of greater or better use of existing resources. Illustrated in a PPC by movement from a one point to another in the northeast direction

Economic growth

Refers to increases in real GDP over time

Recession

Occurs when real GDP falls for at least two cosecutive quarters

National income accounting

The services provided by a statistical entity in every country that measure the economy’s national income and output as well as other economic activity.

National income statistics

The statistical data used to measure a nation’s income and output, and perform national income accounting.

National income

The income earned by the factors of production of an economy, equal wages plus interest, plus rents, plus profits.

Grow domestic product (GDP)

The value of all final goods and services produced within an economy over a period of time, usually a year or a quarter

Gross national income (GNI)

The income earned by all national factors of production, independently of where they are located, over a period of time; it is equal to GDP plus factor income earned abroad minus factor income paid abroad.

Real GDP

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

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

Inflation

A sustained increase in the average level of prices, measured as a percentage change of the average price level over time using a tool like the CPI

Nominal gross domestic product (GDP)

The total value of all final goods and services produced in an economy in a given time period, usually one year, at current values (not adjusted for inflation)

Nominal gross national income (GNI)

The total income earned by all the residents of a country (regardless of where their factors of production are located) in a given time period, usually a year, at current prices (not adjusted for inflation).

Consumer price index (CPI)

The average of the prices of the goods and services that the typical consumer buys expressed as an index number. The CPI is used as a measure o the cost of living in a country and to calculate inflation.

Inflation rate

The percentage change between two periods of the average price level, usually measured through the CPI.

Price deflator

A price index that removes the impact of changes in the price level when measuring nominal economic variables.

Circular flow of income

A simplified illustration that shows the flows of income and expenditures in an economy.

Households

Groups o9f individuals in the economy who share the same living accommodation, who pool their income and jointly decide the set of goods and services to consume.

Firms

Productive units that transform inputs (FOP’s) into output (goods and services), usually aiming at earning profits

Leakages

Income not spent on domestic goods and services. It includes savings, taxes and import expenditure.

Injections

Within the circular flow model these refer to spending on domestic output that does not originate from households and thus includes investment spending by firms, government expenditures and exports.

Consumption

Spending by households on durable and non-durable goods and on services over a period of time

Foreign sector

In an open economy the term refers to exports and imports

Government spending

Refers to all spending by the government that is distinguished into current expenditures, capital expenditures and transfer payments

Income

A flow of eanrings from using factors of production to produce goods and services. Wages and salaries are the factor reward to labor and interest is the flow of income for the ownership of capital.

Imports

The value of goods and services purchased domestically that are produced abroad.

Exports

The value of goods and services that are produced domestically and purchased abroad

Aggregate demand (AD)

Planned spending on domestic goods and services at different average price levels, per period of time.Consists of consumption, investment and government expenditures plus net exports.

Net exports (X-M)

Export revenues minus import expenditure

Income approach

One of the three equivalent ways that GDP can be measured, by adding all the incomes generated in the production process (wages, profits, interest and rent) for a given time period.

Expenditure approach

One of three equivalent ways of measuring GDP that adds all the expenditures made on final domestic goods and services over a period of time by households, firms, the government and foreigners.

Output approach

One of the three equivalent ways that GDP can be measured, it adds up the value of final goods and services produced in a given time period.