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Coincident Economic Indicators
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Variables that reflect peaks and troughs in economic activity as they occur; examples include employment, personal income, and industrial production.
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Lagging Economic Indicator
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Variables that follow or trail changes in overall economic activity; ex.: interest rate and the average duration of unemployment.
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Aggregate Output
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Composite measure of all final goods and services produced in an economy during a given period. Real GDP.
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Aggregate Demand
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Relationship between the economy's price level and aggregate output demanded, with other things constant.
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Price Level
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Composite measure reflecting the price of all goods and services in the economy relative to prices in the base year.
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Real GDP
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Economy's total output measured in dollars of constant purchasing power.
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Aggregate Demand Curve
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Curve representing the relationship between the economy's price level and the real GDP demanded per period, with other things constant.
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Aggregate Supply Curve
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Curve representing the relationship between the economy's price level and the real GDP supplied per period, with other things constant.
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Federal Budget Deficit
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Flow variable measuring the amount by which federal government outlays exceed federal government revenues in a particular period, usually a year.
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Demand-side Economics
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Macroeconomic policy that focuses on shifting the aggregate demand curve as a way of promoting full employment and price stability.
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Stagflation
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Contraction, or stagnation, of a nation's output accompanied by inflation in the price level.
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Supply-side Economics
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Macroeconomic policy that focuses on a right shift of the aggregate supply curve through tax cuts or other changes to increase production incentives.
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Federal Debt
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Stock Variable that measures the net accumulation of annual federal deficits.
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Economy
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the structure of economic activity in a community, a region, a country, a group of countries, or the world.
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Gross Domestic Product (GDP)
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the market value of all final goods and services produced in the nation during a particular period, usually a year.
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Gross World Product
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The market value of all final goods and services produced in the world during a given period, usually a year.
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Flow Variable
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The measure of something over an interval of time, such as your spending per week.
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Stock Variable
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a measure of something at a particular point in time, such as the amount of money you have with you right now.
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Mercantilism
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The incorrect theory that a nation's economic objective should be to accumulate precious metals in the public treasury; this theory prompted trade barriers to cut imports, but other countries retaliated, reducing trade gains from specialization.
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Expansion
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A period during which the economy grows as reflected by rising output, employment, income, and other aggregate measures.
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Contraction
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A period during which the economy declines as reflected by falling output, employment, income, and other aggregate measures.
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Depression
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A long-term economic state characterized by unemployment and low prices and low levels of trade and investment.
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Recession
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A period of decline in economic activity lasting more than a few months, as reflected by falling output, employment, income, and other aggregate measures.
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Inflation
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Increase in the economy's average price levels.
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1990s
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Tech Revolution, Bull Market
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Expenditure Approach to GDP
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Calculating GDP by adding up spending on all final goods and services produced in the nation during the year.
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Income Approach to GDP
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Calculating GDP by adding up all earnings from resources used to produce output in the nation during the year.
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Final Goods and Services
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Goods and services sold to the final, or end, users.
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Intermediate Goods and Services
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Goods and services purchased by firms for further reprocessing and resale.
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Double Counting
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The mistake of including both the value of intermediate products and the value of final products in calculating gross domestic product; counting the same production more than once.
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Consumption
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Household purchases of final goods and services, except for new residences, which count as investment. (68%)
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Investment
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The purchase of new plants, new equipment, new buildings, and new residences, plus net additions to inventory. (16%)
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Physical Capital
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Manufactured items used to produce goods and services; include new plants and new equipment; the stock of equipment and structures that are used to produce goods and services.
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Residential Construction
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Building new homes or dwelling places.
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Inventories
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Producers' stocks of finished and in-process goods.
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Government Purchases
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Spending for goods and services by all levels of government, government outlays minus transfer payments. (20%)
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Net Exports
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The value of a country's exports minus the value of its imports. (-4%)
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Aggregate Expenditure
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Total spending on final goods and services in an economy during a given period, usually a year.
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Aggregate Income
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The total income received by all factors of production in a given period.
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Value Added
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At each stage of production, the selling price of a product minus the cost of intermediate goods purchased from other firms.
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Disposable Income
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The income households have available to spend or to save after paying taxes and receiving transfer payments.
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Net Taxes
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Taxes minus transfer payments.
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Financial Markets
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Banks and other financial institutions that facilitate the flow of funds from savers to borrowers.
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Capital Deepening
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An increase in the amount of capital per worker; one source of rising labor productivity.
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Injection
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Any spending other than by households or an income other than from resource earnings; includes investments, government purchases, exports, and transfer payments.
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Leakage
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Any diversion of income from the domestic spending stream; includes saving, taxes, and imports.
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Depreciation
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The value of capital stock used up to produce GDP or that becomes obsolete during the year.
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Net Domestic Product
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GDP - depreciation
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Nominal GDP
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GDP based on prices prevailing at the time of production.
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Base Year
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The year with which other years are compared when constructing an index; the index equals 100 in the base year.
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Price Index
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a number that shows the average price of products; changes in a price index over time show changes in the economy's average price level
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Consumer Price Index (CPI)
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a measure of inflation based on the cost of a fixed market basket of goods and services.
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Chain-weighted System
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Inflation measure that adjusts the weight from year to year in calculating a price index, thereby reducing the biased caused by a fixed-price weighting system.
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Production
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The process that transforms scarce resources into useful goods and services.
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Productivity
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The ratio of a specific measure of output, such as real GDP, to a specific measure of input, such as labor, in this case productivity measures real GDP per hour of labor; the quantity of goods and services produced from each unit of labor input.
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Labor Productivity
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Output per unit of labor; measured as real GDP divided by the hours of labor employed to produce that output.
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Per-worker Production Function
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The relationship between the amount of capital per worker in the economy and the average output per worker.
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Industrial Market Countries
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Economically advanced capitalist countries of Western Europe, US, Australia, and Japan, plus the newly industrialized Asian economies of Taiwan, South Korea, Hong Kong, and Singapore.
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Developing Countries
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Countries with a lower standard of living because of less human and physical capital per worker.
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Basic Research
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The search for knowledge without regard to how that knowledge will be used.
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Applied Research
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Research that seeks answers to particular questions or to apply scientific discoveries to develop specific products.
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Sticky Prices
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a situation where prices of goods and services are slow to respond to changes in supply and demand
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Industrial Policy
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The view that government - using taxes, subsidies, and regulations - should nurture the industries and technologies of the future, thereby giving these domestic industries an advantage over foreign competition.
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Human Capital
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the knowledge and skills a worker gains through education, training, and experience.
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Rules of the Game
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The laws, customs, manners, conventions, and other institutional elements that determine transaction costs and thereby affect people's incentive to undertake production and exchange.
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Natural Resources
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The inputs into the production of goods and services that are provided by nature, such as land, rivers, and mineral deposits.
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Technical Knowledge
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Society's understanding of the best ways to produce goods and services.
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World Bank
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Human Capital and Rule of Law constitute the largest share of wealth in virtually all countries.
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Diminishing Returns
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The property whereby the benefit from an extra unit of an input declines as the quantity of the input increases.
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Government Purchase Function
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The relationship between government purchases and the economy's income.
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Catch-up Effect
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The property whereby countries that start off poor tend to grow more rapidly than countries that start off rich.
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Foreign Direct Investment
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A capital investment that is owned and operated by a foreign entity.
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Foreign Portfolio Investment
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Investment that is financed with foreign money, but operated by domestic residents.
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Property Rights
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People's ability to exercise authority over the resources they own.
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Inward-oriented Policies
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Attempt to increase productivity and living standards within the country by avoiding interaction with the rest of the world.
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Outward-oriented Policies
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International trade in goods and services can improve the economic well-being of a country's citizens.
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Labor Force
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Those 16 years of age and older who are either working or looking for work.
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Unemployment Rate
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The number unemployed as a percentage of the labor force.
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Discouraged Workers
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Those who drop out of the labor force in frustration because they can't find work.
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Labor Force Participation Rate
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The labor force as a percentage of the adult population.
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Long-term Unemployment
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Those looking for work for 27 weeks or longer.
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Frictional Unemployment
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Unemployment that occurs because job seekers and employers need time to find each other.
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Seasonal Unemployment
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Unemployment caused by seasonal changes in demand for certain kinds of labor.
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Structural Unemployment
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Unemployment because 1) the skills in demand do not match those of the unemployed, or 2) the unemployed do not live where the jobs are.
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Cyclical Unemployment
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Unemployment the fluctuates with the business cycle, increasing during contractions and decreasing during expansions.
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Full Employment
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Employment level when there is no cyclical unemployment.
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Unemployment Benefits
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Cash transfers for those who lose their jobs and actively seek employment.
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Underemployment
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Workers who are overqualified for their jobs or work fewer hours than they would prefer.
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Hyperinflation
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A very high rate of inflation.
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Deflation
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A sustained decrease in the price level.
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Disinflation
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A reduction in the rate of inflation.
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Demand-pull Inflation
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A sustained rise in the price level caused by a rightward shift of the aggregate demand curve.
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Cost-push Inflation
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A sustained rise in the price level caused by a leftward shift of the aggregate supply curve.
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