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Potential GDP
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The maximum amount of GDP that can be produced at any point in time, which depends on the size of the labor force, the number of structures and the amount of equipment in the economy, and the state of technology.
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Real terms
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Measuring expenditures and income with the price level held constant, so that any changes in these values represent changes in the actual amount of goods, services, and income.
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Nominal terms
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Measuring expenditures and income with the price level allowed to vary, so that changes in these values represent changes in the actual amount of goods, services, and income; changes in the price level; or a combination of both factors
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Aggregate expenditure
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The sum of personal consumption expenditure, investment expenditure, government expenditure, and net export expenditure in a given period of time.
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Personal consumption expenditure
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The amount of spending by households on durable goods, nondurable goods, and services in a given period of time.
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Consumption function
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The fundamental relationship in macroeconomics that assumes that household consumption spending depends primarily on the level of disposable income (net of taxes) in the economy, all other variables held constant.
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Marginal propensity to consume (MPC)
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The additional consumption spending generated by an additional amount of real income, assumed to take a value less than 1.
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Saving (S)
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The amount of disposable income that households do not spend on the consumption of goods and services.
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Marginal propensity to save (MPS)
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The additional household saving generated by an additional amount of real income, which equals 1—MPC.
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Real interest rate
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The nominal interest rate adjusted for expected inflation, which is the rate that influences firms' investment decisions.
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Nominal interest rate
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The real interest rate plus the expected rate of inflation, which may differ substantially from the real interest rate during periods of inflation.
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Consumer Sentiment Index (CSI)
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An index, based on a telephone survey of 500 households conducted by the University of Michigan, that measures households' attitudes regarding expected business conditions, personal financial conditions, and consumer confidence about purchasing furniture and major household appliances.
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Consumer Confidence Index (CCI)
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An index, based on a mail survey of 5,000 households conducted by the Conference Board, that measures households' perceptions of general business conditions, available jobs in the households' local area, and expected personal family income in the coming six months.
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Autonomous consumption expenditures
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Consumption expenditures that are determined by factors other than the level of real income in the economy.
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Induced consumption expenditures
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Consumption expenditures that result from changes in the level of real income in the economy
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Gross private domestic investment
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The total amount of spending on nonresidential structures, equipment, and software; residential structures; and business inventories in a given period of time
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Relative prices
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The price of one good in relation to the price of another good.
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Capacity utilization rates (CURs)
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The ratio of production to capacity calculated monthly for the manufacturing, mining, and electric and gas utilities industries and used as an indicator of business investment spending on structures and equipment.
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Investment spending function
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The functional relationship between investment spending and income, holding all other variables that influence investment spending constant.
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Government expenditure
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The total amount of spending by federal, state, and local governments on consumption outlays for goods and services, depreciation charges for existing structures and equipment, and investment capital outlays for newly acquired structures and equipment in a given period of time.
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Fiscal policy
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The use of expenditure and taxation policies by the federal government to pursue the macroeconomic goals of full employment and low inflation.
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Budget surplus/deficit
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The relationship between federal government revenue and expenditure with a surplus indicating revenue greater than expenditure and a deficit indicating revenue less than expenditure.
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Net export expenditure
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The difference between export spending on domestically produced goods and services by individuals in other countries and import spending on foreign-produced goods and services by domestic residents in a given period of time
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Currency exchange rate
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The rate at which one nation's currency can be exchanged for that of another, which is determined in foreign exchange markets
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Aggregate expenditure function
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The relationship between aggregate expenditure and income, holding all other variables constant.
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Equilibrium level of income and output
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The level of income or, equivalently, the aggregate output where the desired spending by all sectors of the economy just equals the value of the aggregate output produced and the income received from that production.
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Injections
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Any supplement to consumer spending that increases domestic aggregate output and income.
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Leakages
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Any uses of current income for purposes other than purchasing currently produced domestic goods and services
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Unplanned inventory decrease
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An unexpected decrease in inventories that occurs when desired aggregate expenditure exceeds the level of output currently produced.
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Unplanned inventory increase
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An unexpected increase in inventories that occurs when desired aggregate expenditure is insufficient to purchase the level of output currently produced.
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Multiplier
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The multiple change in income and output that results from a change in autonomous expenditure
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Interest-related expenditure (IRE) function
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The function that shows the inverse relationship between planned consumption and investment spending and the real interest rate, all else held constant.
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