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National Income Accounting

a system that collects macroeconomic statistics on production, income, investment, and savings

Gross Domestic Product (GDP)

the dollar value of all final goods and services produced within a country's borders in a given year

Intermediate Goods

goods used in the production of final goods

Durable Goods

goods that last for a relatively long time

Nondurable Goods

goods that last a shrot period of time

Nominal GDP

GDP measured in current prices

Real GDP

GDP expressed in constant

Gross National Product (GNP)

the annual income earned by U.S. - owned firms and U.S. citizens


the loss of the value of captial equipment tha tresults from normal wear and tear

Price Level

the average of all prices in the economy

Aggregate Supply

the total amount of goods and services in the economy abailable at all possible price levels

Aggregate Demand

the anound of goods and services in teh economy that will be purchased at all possible price levels

Business Cycle

a period of macroeconomic expansion followed by a period of contraction


a period of economic growth as measured by a rise in real GDP

Economic Growth

a steady, long-term increase in real GDP


the height of an economic expansion, when real GDP stops rising


a period of economic decline marked by falling real GDP


the lowest point in an economic contraction, when real GDP stops falling


a prolonged economic contraction


a recession that is especially long and severe


a decline in real GDP combined with a rise in the price level

Economic Variables

1) Business investment
2) Interest rates and credit
3) Consumer expectations
4) External shocks

Leading Indicators

key economic variables that economists use to predict a new phase of a business cycle

Frictional Unemployment

unemployment that occurs when people take time to find a job

Seasonal Unemployment

unemployment that occurs as a result of harvest schedules or vacations

Structural Unemployment

unemployment that occurs when workers' skills do not match the jobs that are available

Cyclical Unemployment

unemployment that rises during economic downturns and falls when the economy improves

Unemployment Rate

the percentage of nations's labor force that is unemployed
Number unemployed/labor force

Full Employment

the level of employment reached when there is no cyclical unemployment


working at a job for which one is overqualified


a general increase in prices

Purchasing Power

the ability to purchase goods and services

Price Index

a measurement that shows how the average price of a standard group of goods changes over time

Consume Price Index (CPI)

a price index determind by measuring the price of a standard group of goods meant to represent the 'market basket' of a typical urban consumer

updated cost/base period cost

Market Basket

a representative collection of goods and services

Inflation Rate

the percentage rate of change in price level over time

Core Inflation Rate

the rate of inflation excluding teh effects of food and energy prices


inflation that is out of control

Quantity theory

theory that too much money in the econmy causes inflation

Demand-Pull Theory

theory that inflation occurs when demand for goods and services exceeds exsistin supplies

Cost-Push Theory

theory that inflation occurs when producers raise prices in order to meet increased costs

Wage-Price Spiral

the process by which rising wages cause higher prices, and higher prices, and higher prices cause higher wages

Fixed Income

income that does not increase even when prices go up


a sustained drop in the price level

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