national income and product accounts
keep track of the flows of money between different sectors of the economy
consumer spending
household spending on goods and services
stock
share in the ownership of a company held by a shareholder
bond
borrowing in the form of an IOU that pays interest
government transfers
payments by the government to individuals for which no good or service is provided in return
disposable income
total amount of household income available to spend on consumption and to save
disposable income =
income + government transfers - taxes
private savings
disposable income that is not spent on consumption
private savings =
disposable income - consumer spending
financial markets
the banking, stock, and bond markets, which channel private savings and foreign lending into investment spending, government borrowing, and foreign borrowing
government borrowing
the total amount of funds borrowed by federal, state, and local governments in the financial markets
government purchases of goods and services
total expenditures on goods and services by federal, state, and local governments
exports
goods and services sold to other countries
imports
goods and services purchased from other countries
inventories
stocks of goods and raw materials held to facilitate business operation
investment spending
spending on productive physical capital - such as machinery and construction of buildings, and on changes to inventories
ways the rest of the world participates in the US economy
exports, goods manufactured abroad, foreign lending
final goods and services
goods and services sold to the final end user
intermediate goods and services
goods and services - bought from one firm by another firm - that are inputs for production of final goods and services
gross domestic product (GDP)
total value of all final goods and services produced in the economy during a given year
aggregate spending
the sum of consumer spending, investment spending, government purchases of goods and services, and exports minus imports, is the total spending on domestically produced final goods and services in the economy
three ways to calculate GDP
survey firms and add up the total value of their productions of final goods and services, add up aggregate spending on domestically produced final goods and services in the economy, sum the total factor income earned by households from firms in the econom
value added
the value of a producer's sales minus the value of its purchases of intermediate goods and services
GDP =
C + I + G + (X - IM)
net exports
the difference between the value of exports and the value of imports
aggregate output
the economy's total quantity of output of final goods and services
real GDP
total value of all final goods and services produced in the economy during a given year, calculated using the prices of a selected base year
nominal GDP
value of all final goods and services produced in the economy during a given year, calculated using the prices current in the year in which the output is produced
chained dollars
method of calculating changes in real GDP using the average between the growth rate calculated using an early base year and the growth rate calculated using a late base year
GDP per capita
GDP divided by the size of the population; it is equivalent to the average GDP per person
aggregate price level
a measure of the overall level of prices in the economy
market basket
a hypothetical set of consumer purchases of goods and services
price index
measures the cost of purchasing a given market basket in a given year, where that cost is normalized so that it is equal to 100 in the selected base year
inflation rate
the percent change per year in a price index - typically the consumer price index
consumer price index (CPI)
measures the cost of the market basket of a typical urban American family
price index in a given year =
cost of market basket in a given/cost of market basket in base year x 100
inflation rate =
(price index in year 2 - price index in year 1)/price index in year 1 x 100
producer price index (PPI)
measures changes in the prices of goods purchased by producers
GDP deflator
100 times the ratio of nominal GDP to real GDP in that year