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National income and product accounts (National accounts)
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These keep track of the flows of money between different sectors of the economy.
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Household
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A person or group of people who share income.
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Firm
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An organization that produces goods and services for sale.
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Product markets
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These are where goods are bought and sold. Produces a flow of goods and services to the households and a return flow of money to firms.
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Factor markets
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These are where resources, especially capital and labor, are bought and sold. Firms purchase these resources to produce goods and services.
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Consumer spending
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Household spending on goods and services.
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Stock
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A share in the ownership of a company.
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Bond
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A loan given to a company in the form of an IOU (I owe you) that pays interest.
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Government transfers
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Payments that the government makes to individuals without expecting a good or service in return (example: Welfare).
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Disposable income
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Equal to income plus government transfers minus taxes. Total amount of household income available to spend on consumption and to save.
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Private savings
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Equal to disposable income minus consumer spending. Disposable income that is not spent on consumption.
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Financial markets
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The banking, stock, and bond markets, which channel private savings and foreign lending into investment spending, government borrowing, and foreign borrowing.
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Government borrowing
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The amount of funds borrowed by the government in the financial markets.
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Government purchases of goods and services
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Total expenditures on goods and services by federal, state, and local governments.
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Exports
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Goods and services sold to other countries.
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Imports
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Goods and services purchased from other countries.
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Inventories
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Stocks of goods and raw materials held to facilitate business operations.
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Investment spending
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Spending on new productive physical capital, such as machinery and structures, and on changes in inventories.
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Final goods and services
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Goods and services sold to the final, or end, user.
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Immediate good and services
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Goods and services bought from one firm by another firm to be used as inputs into the production of final goods and services. (Example: Louis Vuitton purchases leather from a leather producer to create clothing, bags, etc.)
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Gross Domestic Product (GDP)
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Total value of all goods and services produced in the economy during a given year.
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Aggregate Spending
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Total spending on domestically produced final goods and services in the economy.
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Aggregate Spending Equation
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C + I + G + (X - IM): The sum of consumer spending (C), investment spending (I), government purchases of goods and services (G), and exports minus imports (X - IM). Calculates GDP.
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Value added
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The difference between the value of a producers sales and the value of inputs it purchases from other businesses.
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Net Exports
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The difference between the value of exports and the value of imports. (X - IM).
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Aggregate output
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Total quantity of final goods and services produced within an economy.
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Real GDP
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Total value of all final goods and services produced in the economy during a given year, calculated using the prices of a base year. Adjusts for price changes.
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Nominal GDP
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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.
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Chain-linking
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The method of calculating changes in real GDP using the average between the growth rate calculated using an early base year and the growth rate calculated using a late base year.
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GDP per capita
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GDP divided by the size of the population; equivalent to the average GDP per person.
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Employed
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Describes people currently holding a job in the economy, either full or part time.
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Unemployed
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Describes people who are actively looking for work but are not currently employed.
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Labor force
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Equal to the sum of all employed and unemployed people
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Labor force participation rate
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Percentage of the population age 16 or older that is considered to be in the labor force.
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Unemployment rate
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The percentage of the total number of people in the labor force who are unemployed.
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Discouraged workers
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Nonworking people who are capable of working but have given up looking for a job due to the state of the job market.
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Marginally attached workers
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Would like to be employed and have looked for a job in the recent past but are not currently looking for work.
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Underemployed
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People who work part-time because they cannot find full-time jobs.
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Job search
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Workers who spend time looking for employment.
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Frictional unemployment
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Unemployment due to the time workers spend in job search.
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Structural unemployment
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Unemployment that results when there are more people seeking jobs in a labor market than there are jobs available at the current wage rate.
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Efficiency wages
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Wages that employers set above the equilibrium wage rate as an incentive for better employee performance.
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Natural rate of unemployment
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The unemployment rate that arises from the effects of frictional plus structural unemployment.
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Cyclical unemployment
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Deviation of the actual rate of unemployment from the natural rate.
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Real wage
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Wage rate divided by the price level.
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Real income
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Income divided by the price level.
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Inflation rate
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Percent change per year in a price index - typically the consumer price index.
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Shoe-leather costs
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The increased costs of transactions causes by inflation. The name is an allusion to the wear and tear caused by the extra running around that takes place when people are trying to avoid holding money.
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Menu costs
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Real costs of changing listed prices. ex) Having to re-print hundreds of menus at a restaurant when raising the price of salad by $1.
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Unit-of-account costs
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Costs arising from the way inflation makes money a less reliable unit of measurement.
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Nominal interest rate
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Interest rate actually paid for a loan.
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Real interest rate
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Nominal interest rate minus the rate of inflation.
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Disinflation
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The process of bringing the inflation rate down.
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Aggregate price level
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A measure of the overall level of prices in the economy.
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Market basket
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A hypothetical set of consumer purchases of goods and services.
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Price index
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Measures the cost of purchasing a given market basket in a given year. The value is normalized so that is is equal to 100 in the base year.
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Consumer Price Index (CPI)
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Measures the cost of a market basket for a typical urban American family.
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Producer Price Index (PPI)
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Measures changes in the price of goods and services produced by producers.
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GDP deflator
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Equal to 100 times the ratio of nominal GDP to real GDP in a given year.
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