Macroeconomics and Measuring Economic Activity

These flashcards cover key concepts of macroeconomics and measuring economic activity, including definitions and important terms for understanding economic performance and policies.

Macroeconomics

The study of the performance of national economies and the policies that governments use to try to improve that performance.

Average labor productivity

Output per employed worker.

Recession

Short-term fluctuations in the pace of economic growth (contractions).

Expansion

Short-term fluctuations in the pace of economic growth (periods of growth).

Inflation

The rate at which prices in general are increasing over time.

Fiscal policy

Decisions that determine the government’s budget, including the amount and composition of government expenditures and revenues.

Monetary policy

Actions taken by a central bank to manipulate the money supply and credit conditions to stimulate or restrain economic activity.

Positive economic principle

An economic principle that predicts how people will behave.

Normative economic principle

An economic principle that says how people should behave.

Structural policy

Government policies aimed at changing the underlying structure, or institutions, of the nation’s economy.

Aggregation

The adding up of individual economic variables to obtain economy-wide totals.

Gross domestic product (GDP)

The market value of the final goods and services produced in a country during a given period.

Market value

The selling prices of goods and services in the open market.

Final goods and services

Goods and services sold to the final user.

Intermediate goods

Goods and services used up in the production of final goods and services, not counted as part of GDP.

Value added

For any firm, the market value of its product or service minus the cost of inputs purchased from other firms.

Expenditure method

A method for measuring GDP by summing the values of purchases made by final users.

Consumption (C)

Spending by households on goods and services.

Investment (I)

Spending by firms on new capital goods and net additions to inventories.

Government purchases (G)

Spending by the government on goods and services; excludes transfer payments.

Net exports (NX)

The value of a country’s exports less the value of its imports; also called the trade balance.

Income method

A method for measuring GDP that sums the incomes received by factors of production.

Nominal GDP

A measure of GDP valued at current-year prices.

Real GDP

A measure of GDP valued at the prices in a base year, measures the actual physical volume of production.

Unemployed

People who are not currently working but are actively looking for work.

Not in the labor force

People who are neither employed nor actively looking for work.

Labor force

The total number of employed and unemployed people in the economy.

Unemployment rate

The percentage of the labor force that is unemployed.

Participation rate

The percentage of the adult population that is in the labor force.

Trade balance

The value of a country’s exports less the value of its imports.

Trade surplus

The situation in which a country’s exports exceed its imports.

Trade deficit

The situation in which a country’s imports exceed its exports.