Basic Macroeconomic Terminology

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