National income and product accounts (national accounts) - keep track of the flows of money among different sectors of the economy
Product Markets - where goods and services are bought and sold
Consumer spending - households spending on goods and services
Factor 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 - the total amount the government receives from taxes
Disposable income - income plus government transfers minus taxes, the total amount of household income available to spend on consumption
Government transfers - payments that the government makes to individuals without expecting a good or service in return
Private savings - equal to disposable income minus consumer spending, is a household’s disposable income
Financial markets - channel private savings into investment spending and government borrowing
Government borrowing - the amount of funds borrowed by the government in the financial market
Investment spending - spending on new productive physical capital, such as machinery and structures, and on changes in inventories
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
Gross domestic product (GDP) - total value of all final goods and services produced in a year
Expenditure approach - calculating GDP using sum of consumer spending, investment spending, government purchases, and exports minus imports
Aggregate spending - sum of consumer spending, investment spending, government purchases, and exports minus imports
Income approach - adds up total factor income earned by households from firms in the economy, including rent, wages, interest, and profit
Value added approach - surveys firms and adds up their contribution to the value of final goods and services
Final goods and services - services or goods that are sold to the final consumer
Intermediate goods and services - goods and services bought from one firm by another firm to be used as inputs into the production of final goods and services
Net exports - the difference between the value of exports and the value of imports (X-M)
Value added - The value of sales minus the value of its purchases of inputs
Nonmarket transactions - goods and services that are not bought and sold in a legal market
Employed people - people who are currently holding a job in the economy, either full time or part time
Unemployed - people who are actively looking for work but aren’t currently employed
Labor force - the sum of the employed and the unemployed
Labor force participation rate - the percentage of the population aged 16 or older that is in the labor force
Unemployment rate - the percentage of the total number of people in the labor force who are unemployed
Discouraged workers - non-working people who are capable of working but have given up looking for a job due to the state of the job market
Underemployed - workers who would like to work more hours or who are overqualified for their jobs
Frictional unemployment - unemployment due to the time workers spend in the job search
Structural unemployment - unemployment that results when workers lack the skills required for the available jobs, or there are more people seeking jobs in a labor market than there are jobs available in the current wage rate
Natural rate of unemployment - unemployment rate that arises from the effects of frictional plus structural unemployment
Cyclical unemployment - deviation of the actual rate of unemployment from the natural rate
Inflation - rise in overall price level
Deflation - falling in overall price level
Price stability - when the overall price level is changing only slowly if at all
Real wage - wage rate divided by the price level to adjust for the effects of inflation or deflation
Real income - income divided by the price level to adjust for the effects of inflation or deflation
Inflation rate - the percentage increase in the overall levels of prices per year
Aggregate price level - a measure of the overall level of prices in the economy
Market basket - a hypothetical set of consumer purchases of goods and services
Base year - the year chosen for comparison when calculating a price index
Price index - measures the cost of purchasing a given market basket in a given year
Consumer price index - measures the cost of the market basket of a typical urban American family
Substitution bias - occurs in the CPI because, over time, items with prices that have risen most receive too much weight (because households substitute away from them), while items with prices that have risen least are given too little weight (because households shift their spending toward them)
Produce price index (PPI) - measures the prices of goods and services purchased by producers
Nominal interest rate - interest rate actually paid for a loan
Real interest rate - nominal interest rate minus the rate of inflation
Disinflation - the process of bringing the inflation rate down
Aggregate output - the total quantity of final goods and services produced within an economy
Real GDP - the total value of all final goods and services produced in the economy during a given year, calculated using the prices of a selected base year in order to remove the effects of price changes
Nominal GDP - the total value of all final goods and services produced in the economy during a given year, calculated with the prices current in the year in which the output is produced
GDP Deflator - 100 times the ratio of nominal GDP to real GDP in that year
GDP per capita - GDP divided by the size of the population; it is equivalent to the average GDP per person
Business cycle - the alternation between economic downturns and economic upturns
Recessions - periods of economic downturns when output and employment are failing
Trough - low minimum
Expansions - periods of economic upturns when output and employment are rising
Peak - high maximum
Depression - a very deep and prolonged downturn
Economic growth - an increase in the maximum amount of goods and services an economy can produce
Full employment level of output - Level of real GDP the economy can produce if all resources are fully employed
Potential output - the level of real GDP the economy would produce if all prices, including nominal wages, were flexible
Output gap - the difference between actual output and potential output
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