Gross Domestic Product or GDP
the total value of all final goods and services produced in the economy during a given year.
final goods and services
goods and services sold to the final, or end, user.
Intermediate Good
goods and services bought from one firm by another firm to be used as inputs into production of final goods and services.
Real GDP
the 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
the total value of all final goods and services produced in the economy during a given year, calculated with the prices current in the year in which the output is produced.
GDP Per Capita
is GDP divided by the size of the population; it is equivalent to the average GDP per person.
Labor Force
is equal to the sum of the employed and the unemployed.
Unemployment Rate
is the percentage of the total number of people in the labor force who are unemployed. Only includes those that are actively looking for work but cannot find a job.
Frictional Unemployment
unemployment due to the time workers spend in job search. (searching or waiting for jobs...recent college graduates)
Structural Unemployment
type of frictional unemployment that results when there are more people seeking jobs in a labor market than there are jobs available at the current wage rate. (often due to creative destruction...new skills have made old skills outmoded)
Natural Rate of Unemployment
the unemployment rate that arises from the effects of frictional plus structural unemployment.
Cyclical Unemployment
is the deviation of the actual rate of unemployment from the natural rate. (due to recession ).
Inflation rate
is the percent change per year in a price index-typically the consumer price index.
unit of account costs
arise from the way inflation makes money a less reliable unit of measurement.
Nominal interest rate
is the interest rate actually paid for a loan.
Real interest rate
is the nominal interest rate minus the rate of inflation.
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. The index value is normalized so that it is equal to 100 in the selected base year.
Consumer Price Index (CPI)
measures the cost of the market basket of a typical urban American family.
GDP deflator
or a given year is 100 times the ratio of nominal GDP to real GDP in that year.
Resource Market
A marketplace for the exchange of labor, capital or raw materials.
Product Market
The marketplace in which a final or finished goods or services is bought by consumers.
Circular Flow Model
A model which illustrates the flow of goods and services through the economy. In the model producers are known as firms while consumers are referred to as households. Firms supply goods and services while households consume them. The factors of production
Business Cycle
a short-run alternation between economic downturns, known as recessions, and economic upturns, known as expansions. Illustrates all of the following; full employment, peak, troughs, and cyclical unemployment.