| Term | Definition |
|---|
| Circular Flow | A model that shows the process of exchange among consumers (also called households), businesses and government. |
| Expenditures Approach | The total or sum of all monies spent to purchase aggregate output. One of two ways to calculate GDP. |
| Income Approach | The total or sum of all income earned in the production of GDP. One of two ways to calculate GDP. |
| Final Goods | Goods to be sold to the consumer for final use, these goods are not for resale. |
| Intermediate Goods | Goods used in the production of other goods. Using intermediate goods in calculation of GDP would cause double counting, overstating the value of GDP. |
| Value Added | The difference between the value of the products produced by a firm minus the value of the products (materials) purchased and used by the firm to produce the product |
| C + Ig + G + Xn | Formula used to calculate the expenditures approach. |
| Personal Consumption Expenditures | C = Personal Consumption Expenditures - spending by households on goods and services. |
| Gross Private Domestic Investment | Ig = Gross Private Domestic Investment - total investment by businesses on plant, equipment, and inventory goods before depreciation. |
| Depreciation | D = deprecation - to decline in value. The allowance for worn out or used up capital. It is a charge against total business receipts for the year. |
| Government Spending | G = Government Spending (or purchases) - all goods and services bought by government. |
| Net Exports | Xn = Net Exports - the difference between a country's exports minus its imports. |
| Exports | Goods produced in one country and sold to another country. Goods leaving the country of domestic origin. |
| Imports | Goods produced in another country and bought by another country. Goods coming into a country which were produced elsewhere. |
| Durable Goods | Goods expected to last a year or longer. |
| Nondurable Goods | Goods expected to last less than a year. |
| Net Private Domestic Investment | In = Net Private Domestic Investment - total business investment (Ig) minus depreciation (D). Ig - D = In |
| Expanding Economy | If Net Investment (In) is positive, the economy is growing or expanding. |
| Static Economy | If Net Investment (In) is zero, the economy is static or not changing. The economy is adding new capital at a rate just fast enough to replace what is being worn out or used up. This situation occurred during World War II in the United States. |
| Declining Economy | If Net Investment (In) is negative, the economy is declining. Net investment in this economy is negative. The economy is producing less than what is being used up during the year. This occurred in the United States during the Great Depression. |
| Services | The physically intangible actions performed to satisfy economic wants, including but not limited to medical care, dental care, haircuts, education, police protection, fire protection, and national defense |
| Inventory Investment | The value of the stocks of inventories that businesses keep in reserve to facilitate production and sales. |
| National Income | NI = National Income - all income earned by American-owned resources, whether located here or abroad. NI = Compenstation of Employees + Rent + Interest + Profit |
| Compensation of Employees | Income earned from providing labor to businesses. Compensation of Employees = Wages and salaries + wage and salary supplement. |
| Rent | Income earned from renting property to others, including land, housing, and office space. |
| Interest | Income earned on gains from financial investments. |
| Profit | Profit includes: Proprietors' Income and Corporate Income |
| Proprietors' Income | Proprietors' income is money earned by sole proprietors or partners in unincorporated businesses. |
| Corporate Income | Corporate income includes: Corporate income taxes to government + Dividends paid to stockholders + Undistributed corporate profits or retained earnings. |
| Gross National Product | GNP = Gross National Product - the total dollar value of all goods and services produced, in final form, by United States firms, no matter where these firms are located worldwide. |
| Net Domestic Product | NDP = Net Domestic Product. NDP is GDP adjusted for depreciation. GDP as a measure of total output gives an exaggerated sense of output. NDP = GDP - D |
| Personal Income | PI = Personal Income. PI is income received, but not necessarily earned, by households before paying personal taxes. |
| Transfer Payments | Income received, but not earned, including (but not limited to) unemployment insurance, veterans benefits, Temporary Assistance to Needy Families, and subsidies to farmers. |
| Disposal Income | DI = Disposable Income. DI is personal income minus personal income taxes. DI = PI - PITS |
| Personal Income Taxes | PITS = Personal Income Taxes. PITS are taxes paid to a government agency for wages and salaries earned. |
| Savings | Monies not spent. |
| Underground Economy | The unreported or illegal production of goods and services in an economy. The underground economy is not included in the calculation of GDP. |
| Tax Avoidance | The driving force behind the underground economy. |
| Indirect Business Tax | Taxes businesses pay to government for which government has done nothing to earn. Example: Sales taxes |
Combine with other sets
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