Basic Macroeconomic Terminology
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Basic Macroeconomic Terminology
Gross Domestic Product (GDP): the market value of all final goods and services produced in a year within a country borders.
Expenditure approach: GDP = C + I + G + X where C is gross private domestic consumption, I is gross private domestic investment, G is gross public consumption and investment and X is net exports (exports – imports).
Gross National Product (GNP): the market value of all final goods and services produced in a year by nationally owned resources regardless of location. GNP = GNP + receipts of factor income from the rest of the world – payments of factor income to the rest of the world.
Nominal GDP (NGDP): measures output (GDP) in terms of its current dollar value.
Real GDP (RGDP): measure output (GDP) by eliminating the influence of price changes from the nominal GDP statistics.
Price index: measures price level changes over time.
GDP deflator price index: measure of prices across the economy that reflects all of the categories of goods and services included in GDP.
Consumer price index (CPI): measure of the average price of goods and services purchased by the typical household.
Producer price index (PPI): measure of average prices received by producers.
Cost of Living Adjustment (COLA): increase in wages that is designed to match increases in prices of items purchased by the typical household.
Inflation: a sustained rise in the average level of prices
Demand-pull inflation: inflation caused by increasing demand for output
Cost-push inflation: inflation caused by rising costs of production
Disinflation: a positive inflation rate that decreases over time
Deflation: a negative rate of inflation
Business cycle: the rise and fall of real GDP over time.
Recession: a period in which real GDP falls (must be at least two consecutive quarters)
Depression: a severe, prolonged economic contraction
Expansion: a period in which real GDP increases
Unemployment rate: the percentage of the labor force that is not working
Types of Unemployment:
Frictional Unemployment: due to short-term movement of workers between jobs.
Structural Unemployment: caused by changes in technology or the structure of the economy.
Cyclical Unemployment: arises because of the business cycle.
Natural Rate