Economics Chapter 19

measuring a nation's production and income

Macroeconomics -- the branch of economics that looks at a nation's economy as a whole
recession -- commonly defined as six consecutive months of negative economic growth
inflation -- sustained increases in prices
factor markets -- the markets in which labor and capital are traded
product markets -- the markets in which goods and services are traded
Gross domestic product (GDP) -- the total market value of all the final goods and services produced within an economy in a given year
intermediate goods -- goods used in the production process that are not final goods or services
real GDP -- a measure of GDP that controls the changes in prices
nominal GDP -- the value of GDP in current dollars
economic growth -- sustained increases in the real production of an economy over a period of time
consumption expenditures -- purchases of newly produced goods and services by households
durable goods -- goods that last for a long period of time, such as household appliances
nondurable goods -- good to last for short periods of time, such as food
services -- reflect work done in which people play a prominent role in delivery, ranging from here cutting to health care
private investment expenditures -- purchases of newly produced goods and services by firms
Gross investment -- actual investment purchases
depreciation -- the wear and tear of capital as it is used in production
net investment -- Gross investment minus depreciation
government purchases -- purchases of newly produced goods and services by all levels of government
transfer payments -- payments to individuals from governments that do not correspond to the production of goods and services
imports -- a good produced in a foreign country and purchased by residents of the home country
exports -- it's produced in the home country and sold in another country
net exports -- exports minus imports
trade deficit -- the excess of imports over exports
trade surplus -- the excess of exports over imports
national income -- net national product less indirect taxes
Gross national product (GNP) -- GDP plus net income earned abroad
net national product (NNP) -- GNP less depreciation
indirect taxes -- sales and excise taxes
personal income -- income received by households
personal disposable income -- personal income after taxes
value added -- the sum of all the income generated by an organization
GDP deflator -- an index that measures how the price of goods included in the GDP changes over time
chain index -- a method for calculating changes in prices that uses base years from neighboring years
Peak -- the time at which a recession begins
trough -- the time at which I'll put stops falling in a recession
expansion -- the period after a trough in the business cycle during which the economy recovers
Depression -- the common name for a severe recession

Notes

Developing meaningful statistics for entire economy is difficult. Statistics can convey useful information if they are used with care.

The circular flow shows how the production of goods and services generate income for households and how households purchased goods and services by firms.

GDP is the market value of all final goods and services produced in a given year.

GDP consists of four components:
consumption
investment
government purchases
net exports.

National income is obtained from GDP by adding net income US individuals and firms are earned from abroad, then subtracting depreciation and indirect taxes.

Real GDP is calculated by using constant prices. The Commerce Department now uses methods that take an average using base years from neighboring years.

A recession is commonly defined as a six-month consecutive period of negative growth. However, in the United States, the National Bureau of Economic Research uses a broader definition.

GDP does not include nonmarket transactions, leisure time, the underground economy, or changes to the environment.