| Term | Definition |
|---|---|
| circular flow diagram | A model that illustrates how income and expenditure flow between households, businesses, and the government in an economy. |
| expenditures approach | A method of measuring GDP by summing all spending on final goods and services: consumption, investment, government spending, and net exports. |
| final output | Goods and services that are ready for consumption or investment, not intermediate goods used in production. |
| Gross Domestic Product | The total monetary value of all final goods and services produced within a country during a specific period. |
| income approach | A method of measuring GDP by summing all incomes earned in the production of goods and services, including wages, profits, and rent. |
| nominal GDP | The total monetary value of all final goods and services produced in an economy during a specific period, measured using current prices without adjustment for inflation. |
| value-added approach | A method of measuring GDP by summing the value added at each stage of production to avoid double-counting. |
| Term | Definition |
|---|---|
| economic performance | The overall health and productivity of an economy, typically measured through indicators such as GDP, inflation, and unemployment. |
| Gross Domestic Product | The total monetary value of all final goods and services produced within a country during a specific period. |
| inflation rate | The percentage change in the general price level of goods and services in an economy over a specific time period. |
| nonmarket transactions | Economic activities that are not bought or sold in markets, such as household production, volunteer work, or informal economy activities, and therefore are not captured in GDP. |
| unemployment rate | The percentage of the labor force that is actively seeking employment but currently unemployed, calculated as (number of unemployed / labor force) × 100. |
| Term | Definition |
|---|---|
| cyclical unemployment | Unemployment that fluctuates with the business cycle, increasing during recessions and decreasing during expansions due to changes in aggregate demand. |
| discouraged workers | Individuals who have stopped actively seeking employment due to repeated job search failures and are therefore not counted in the official unemployment rate. |
| employment | The state of having a paid job or being engaged in work for compensation. |
| frictional unemployment | Unemployment that occurs when workers are between jobs or entering the labor force, resulting from the time it takes to search for and match with available positions. |
| full employment | An economic condition where all available labor resources are being used efficiently and unemployment is at its natural rate. |
| joblessness | The state of being without employment, including both those officially counted as unemployed and those not captured by the unemployment rate. |
| labor force | The total number of people in an economy who are either employed or actively seeking employment. |
| labor force participation rate | The percentage of the working-age population that is either employed or actively seeking employment, calculated as (labor force / working-age population) × 100. |
| labor market | The market where labor services are bought and sold, involving the interaction between workers seeking employment and employers seeking workers. |
| natural rate of unemployment | The unemployment rate that exists when the economy produces full-employment real output, equal to the sum of frictional and structural unemployment. |
| part-time workers | Individuals employed for fewer hours than a full-time position, who may be underemployed or seeking additional work but are counted as employed in unemployment statistics. |
| structural unemployment | Unemployment resulting from a mismatch between workers' skills and job requirements, or from geographic mismatches between workers and available jobs. |
| types of unemployment | Different categories of unemployment based on the underlying causes, including frictional, structural, and cyclical unemployment. |
| unemployment rate | The percentage of the labor force that is actively seeking employment but currently unemployed, calculated as (number of unemployed / labor force) × 100. |
| Term | Definition |
|---|---|
| base year | A reference year used to standardize prices when calculating real GDP, allowing for comparison of economic output across different time periods. |
| Consumer Price Index | A measure of the average change in prices paid by consumers for goods and services over time. |
| deflation | A sustained decrease in the general price level of goods and services in an economy over time. |
| disinflation | A decrease in the rate of inflation, where prices are still rising but at a slower pace than before. |
| GDP deflator | A price index that measures the ratio of nominal GDP to real GDP, used to convert nominal GDP to real GDP by adjusting for inflation. |
| inflation | A sustained increase in the general price level of goods and services in an economy over time. |
| inflation rate | The percentage change in the general price level of goods and services in an economy over a specific time period. |
| nominal variables | Economic variables measured in current dollars without adjustment for changes in the price level. |
| price indices | Statistical measures that track the average change in prices paid by consumers for a basket of goods and services over time. |
| price level | The average of all prices of goods and services produced in an economy, typically measured by price indices like the CPI. |
| real variables | Economic variables that have been adjusted for inflation by deflating nominal values by the price level, such as real wages. |
| substitution bias | A shortcoming of the CPI where it fails to account for consumers' ability to substitute more expensive goods with cheaper alternatives, causing the CPI to overstate true inflation. |
| Term | Definition |
|---|---|
| borrowers | Individuals or entities that demand loanable funds by taking loans in the loanable funds market. |
| deflation | A sustained decrease in the general price level of goods and services in an economy over time. |
| lenders | Individuals or institutions that provide money or credit to borrowers with the expectation of repayment, often with interest. |
| unexpected inflation | A rise in the general price level of goods and services that occurs contrary to what individuals and businesses anticipated, causing economic disruption. |
| wealth redistribution | The transfer of economic resources or purchasing power from one group of individuals to another, often as an unintended consequence of economic changes. |
| Term | Definition |
|---|---|
| aggregate output | The total quantity of goods and services produced in an economy, typically measured as real GDP. |
| base year | A reference year used to standardize prices when calculating real GDP, allowing for comparison of economic output across different time periods. |
| constant prices | Prices from a fixed base year used to measure output across different time periods while removing the effect of inflation. |
| current prices | The market prices of goods and services in the time period being measured. |
| final goods and services | Products and services produced for end consumers rather than for further processing or resale in the production chain. |
| GDP deflator | A price index that measures the ratio of nominal GDP to real GDP, used to convert nominal GDP to real GDP by adjusting for inflation. |
| nominal GDP | The total monetary value of all final goods and services produced in an economy during a specific period, measured using current prices without adjustment for inflation. |
| price level | The average of all prices of goods and services produced in an economy, typically measured by price indices like the CPI. |
| real GDP | The total monetary value of all final goods and services produced by an economy, adjusted for inflation to reflect actual changes in production. |
| Term | Definition |
|---|---|
| aggregate demand | The total quantity of goods and services demanded across an entire economy at different price levels. |
| aggregate output | The total quantity of goods and services produced in an economy, typically measured as real GDP. |
| aggregate supply | The total quantity of goods and services that producers are willing and able to supply at various price levels. |
| business cycle | Fluctuations in aggregate output and employment caused by changes in aggregate supply and/or aggregate demand. |
| expansion | A phase of the business cycle characterized by an increase in aggregate output and employment. |
| full employment | An economic condition where all available labor resources are being used efficiently and unemployment is at its natural rate. |
| natural rate of unemployment | The unemployment rate that exists when the economy produces full-employment real output, equal to the sum of frictional and structural unemployment. |
| output gap | The difference between actual output and potential output in an economy. |
| peak | A turning point in the business cycle where aggregate output reaches its highest level before declining. |
| potential output | The maximum level of real GDP an economy can produce when all resources are fully and efficiently utilized. |
| recession | A period of economic contraction characterized by declining GDP and reduced economic activity. |
| trough | A turning point in the business cycle where aggregate output reaches its lowest level before increasing. |
| turning points | The moments in the business cycle where the direction of economic activity changes, specifically peaks and troughs. |