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National Income Accounting

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the techniques used to measure the overall production of the economy and other related variables for the nation as a whole

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Gross Domestic Product (GDP)

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the total market value of all final goods and services produced annually within the boundaries of the United States, whether by U.S. or foreign-supplied resources

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Intermediate Goods

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products that are purchased for resale or further processing or manufacturing

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Final Goods

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goods that have been purchased for final use and not for resale or further processing or manufacturing

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Multiple Counting

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wrongly including the value of intermediate goods in the gross domestic product; counting the same good or service more than once

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Value Added

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the value of the product sold by a firm less the value of the products (materials) purchased and used by the firm to produce the product

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Expenditures Approach

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the method that adds all expenditures made for final goods and services to measure the gross domestic product

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Income Approach

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the method that adds all the income generated by the production of final goods and services to measure the gross domestic product

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Personal Consumption Expenditures

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the expenditures of households for durable and nondurable consumer goods and services

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Gross Private Domestic Investment (Ig)

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expenditures for newly produced capital goods (such as machinery, equipment, tools, and buildings) and for additions to inventories

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Net Private Domestic Investment

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gross private domestic investment less consumption of fixed capital; the addition to the nation's stock of capital during a year

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Government Purchases (G)

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expenditures by government for goods and services that government consumes in providing public goods and for public (or social) capital that has a long lifetime; the expenditures of all governments in the economy for those final goods and services

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Net Exports (Xn)

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total exports minus total imports

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Corporate Income Taxes

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taxes levied on the net income (accounting profit) of corporations

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Dividends

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payments by a corporation of all or part of its profit to its stockholders (the corporate owners)

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Undistributed Corporate Profits

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after-tax corporate profits not distributed as dividends to stockholders; corporate or business savings; also called retained earnings

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National Income

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total income earned by resource suppliers for their contributions to gross domestic product; equal to the gross domestic product minus nonincome charges, minus net foreign factor income

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Indirect business Taxes

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such taxes as sales, excise, and business property taxes, and tariffs that firms treat as costs of producing a product and pass on (in whole or in part) to buyers by charging higher prices

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Consumption of Fixed Capital

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an estimate of the amount of capital worn out or used up (consumed) in producing the gross domestic product; also called depreciation

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Net Domestic Product (NDP)

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gross domestic product less the part of the year's output that is needed to replace the capital goods worn out in producing the output; the nation's total output available for consumption or additions to the capital stock

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Personal Income (PI)

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the earned and unearned income available to resource suppliers and others before the payment of personal taxes

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Disposable Income (DI)

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personal income less personal taxes; income available for personal consumption expenditures and personal saving

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Nominal GDP

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the GDP measured in terms of the price level at the time of measurement (adjusted for inflation)

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Real GDP

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GDP adjusted for inflation; gross domestic product in a year divided by the GDP price index for that year, the index expressed as a decimal

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Price Index

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an index number that shows how the weighted-average price of a "market basket" of goods changes over time

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Productivity

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A measure of average output or real output per unit of input

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Labor Force

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Persons 16 years of age and older who are not in institutions and who are employed or are unemployed and seeking work

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Unemployment Rate

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The percentage of the labor force unemployed at any time

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Discouraged Workers

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Employees who have left the labor force because they have not been able to find employment

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Frictional Unemployment

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A type of unemployment caused by workers voluntarily changing jobs and by temporary layoffs; unemployed workers between jobs

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Cyclical Unemployment

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A type of unemployment caused by insufficient total spending (or by insufficient aggregate demand)

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Full-Employment Rate of Unemployment

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The unemployment rate at which there is no cyclical unemployment of the labor force; equal to between 4 and 5 percent in the United States because some frictional and structural unemployment is unavoidable

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Natural Rate of Unemployment (NRU)

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The full-employment unemployment rate; the unemployment rate occurring when there is no cyclical unemployment and the economy is achieving its potential output; the unemployment rate at which actual inflation equals expected inflation

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Potential Output

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The real output (GDP) an economy can produce when it fully employs its available resources

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Structural Unemployment

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Unemployment of workers whose skills are not demanded by employers, who lack sufficient skill to obtain employment or who cannot easily move to locations where jobs are available

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GDP Gap

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Actual gross domestic product minus potential output; may be either a positive amount or a negative amount

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Okun's Law

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The generalization that any 1% point rise in the unemployment rate about the full-employment unemployment rate will increase the GDP gap by 2% of the potential output (GDP) of the economy

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Consumer Price Index (CPI)

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An index that measures the prices of a fixed "market basket" of some 300 goods and services bought by a "typical" consumer

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Inflation

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A rise in the general level of prices in an economy

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Demand-Pull Inflation

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Increases in the price level (inflation) resulting from an excess of demand over output at the existing price level, caused by an increase in aggregate demand

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Cost-Push Inflation

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Increases in the price level (inflation) resulting from an increase in resource costs and hence in per-unit production costs; inflation caused by reductions in aggregate supply

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Per-Unit Production Costs

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The average production costs of a particular level of output; total input cost divided by units of output

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Nominal Income

answer

The number of dollars received by an individual or group for its resources during some period of time

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Real Income

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The amount of goods and services that can be purchased with nominal income during some period of time; nominal income adjusted for inflation

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Anticipated Inflation

answer

Increases in the price level (inflation) that occur at the expected rate

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Unanticipated Inflation

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Increases in the price level (inflation) at a rate greater than expected

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Cost-of-Living Adjustments (COLAs)

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An automatic increase in the incomes (wages) of workers when inflation occurs; guaranteed by a collective bargaining between firms and workers

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Real Interest Rate

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The interest rate expressed in dollars of constant value (adjusted for inflation) and equal to the nominal interest rate less the expected rate of inflation

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Nominal Interest Rate

answer

The interest rate expressed in terms of annual amounts currently charged for interest and not adjusted for inflation

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Deflation

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A decline in the economy's price level

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Hyperinflation

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A very rapid rise in the price level; an extremely high rate of inflation

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Economic Growth

answer

An increase of real output (GDP) or real output per capita

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Rule of 70

answer

A method for determining the number of years it will take for some measure to double, given its annual percentage increase

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Business Cycle

answer

Recurring increases and decreases in the level of economic activity over periods of years; consists of peak, recession, trough, and recovery phases

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45 Degree Line

answer

A line along which the value of GDP (measure horizontally) is equal to the value of aggregate expenditures (measured vertically)

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Consumption Schedule

answer

A schedule showing the amounts households plan to spend for consumer goods at different levels of disposable income

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Saving Schedule

answer

A schedule that shows the amounts households plan to save (plan not to spend for consumer goods), at different levels of disposable income

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Break-Even Income

answer

The level of disposable income at which households plan to consume (spend) all their income and to save none of it; also the level of earned income at which subsidy payments becomes zero

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Average Propensity to Consume (APC)

answer

Fraction (or %) of disposable income that households plan to spend for consumer goods and services; consumption divided by disposable income

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Average Propensity to Save (APS)

answer

Fraction (or %) of disposable income that households save; saving divided by disposable income

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Marginal Propensity to Consume (MPC)

answer

The fraction of any change in disposable income spent for consumer goods; equal to the change in consumption divided by the change in disposable income

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Marginal Propensity to Save (MPS)

answer

The fraction of any change in disposable income that households save; equal to the change in saving divided by the change in disposable income

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Wealth Effect

answer

The tendency for people to increase their consumption spending when the value of their financial and real assets rises and to decrease their consumption spending when the value of those assets falls

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Expected Rate of Return

answer

The increase in profit a firm anticipates will obtain by purchasing capital (or engaging in research and development); expressed as percentage of the total cost of the investment (R&D) activity

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Investment Demand Curve

answer

A curve that shows the amounts of investment demanded by an economy at a series of real interest rates

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Multiplier

answer

The ratio of a change in the equilibrium GDP to the change in investment or in any other component of aggregate expenditures or aggregate demand; the number by which a change in any component of aggregate expenditures or aggregate demand must be multiplied to find the resulting change in the equilibrium GDP

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Planned Investment

answer

The amount that firms plan or intend to invest

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Investment Schedule

answer

A curve or schedule that shows the amounts firms plan to invest at various possible values of real GDP

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Aggregate Expenditures Schedule

answer

A schedule or curve showing the total amount spent for final goods and services at different levels of real GDP

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Equilibrium GDP

answer

The GDP at which the total quantity of final goods and services purchased (aggregate expenditures) is equal to the total quantity of final goods and services produced (real domestic output); the real domestic output at which the aggregate demand curve intersects the aggregate supply curve

question

Leakage

answer

A withdrawal of potential spending from the income-expenditures stream via saving, tax payments, or imports

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Injection

answer

An addition of spending to the income-expenditure stream; investment, government purchases, and net exports

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Unplanned Changes in Inventories

answer

Changes in inventories that firms did not anticipate; changes in inventories that occur because of unexpected increases or decreases of aggregate spending (of aggregate expenditures)

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Net Exports

answer

Total exports minus total imports

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Lump-Sum Tax

answer

A tax that is a constant amount (the tax revenue of government is the same) at all levels of GDP

question

Recessionary Gap

answer

The amount by which the aggregate expenditures schedule must shift upward to increase the real GDP to its full-employment, noninflationary level

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Inflationary Gap

answer

The amount by which the aggregate expenditures schedule must shift downward to decrease the nominal GDP to its full-employment noninflationary level

Macroeconomics Unit 3 Test – Flashcards

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