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| Economics | The study of how to allocate scarce resources. |
| Macroeconomics | The branch of economics that deals with the whole economy and issues that affect most of society. |
| Microeconomics | The branch of economics that looks at decision making at the firm, household, and individual levels. |
| GDP | Gross Domestic Product, The total of all final goods and services produced in a year within a country. |
| National income | The sum of income earned by the factors of production owned by a country's citizens. |
| Personal income | The money income received by households before personal income taxes and subtracted. |
| Disposable income | Personal income minus personal income taxes. |
| GDP - Expenditure | Adds up spending by households, firms, the government and the rest the world |
| GDP - Formula | GDP = C+I+G+ (X-M) |
| Consumption | (C) Personal Consumption by households, such as purchases of durable and nondurable goods and services. |
| Investment | (I) Represents investment in new capital, construction, and additions to inventories. |
| Government | (G) Represents government purchases |
| Net Exports | (X) Represents exports minus (M) imports |
| GDP - Income | Makes use of the fact that expenditures on GDP ultimately become income. |
| Depreciation | is the decline in the value of capital over time due to wear and obsolescence. |
| Deflation | A sustained decrease in the general price level. |
| Inflation | A sustained increase in the overall price level. |
| Nominal | The actual number or price |
| Real | The purchasing power or inflation adjusted price |
| CPI | Consumer Price Index, A price index whose movement reflects changes in the prices of goods and services typically purchased by consumers. |
| CPI formula | CPI = [Cost of base year market basket at current prices / Cost of base year market basket at base year prices] x 100 |
| Inflation formula | Inflation = [CPI Recent/CPI Past - 1] * 100 |
| Labor force | Includes employed and unemployed individuals who are ages 16 and older. |
| Unemployed | Person age 16 or older who is out of work who is willing and able to work |
| Unemployment rate | The number of unemployed workers divided by the number in the labor force. |
| Frictional unemployment | Occurs as unemployed workers and firms search for the best available worker-job matches. Includes new workers, in-between workers and those moving from location to location or occupation to occupation. |
| Structural unemployment | The result of a skills mismatch. Under education and technological advancements are large factors in this type of unemployment. |
| Cyclical Unemployment | Results from downturn in the business cycle, i.e. recession, depression, seasonal, etc. |
| Discouraged workers | Those who are willing and able to work, but stop trying. |
| Natural rate of unemployment | Typical rate of unemployment, about 5% in the US. |
| Full employment | The level of employment that an economy can support, corresponding with the natural rate of unemployment. |
| Real GDP | The total value of final goods and services produced during a particular year or period, adjusted to eliminate the effects of changes in prices. |
| Nominal GDP | The total value of final goods and services for a particular period valued in terms of prices for that period. |
| business cycle | The economy's pattern of expansion, then contraction, then expansion. |
| complete business cycle | Is defined by the passage from one peak to the next. |
| Expansion | A sustained period in which real GDP is rising. |
| recession | A sustained period (two consecutive quarters) in which real GDP is falling. |
| peak | The point of the business cycle at which an expansion ends and a recession begins. |
| trough | The point of the business cycle at which a recession ends and expansion begins |
| hyperinflation | An inflation rate in excess of 200% per year. |
| price index | A number whose movement reflects movement in average level of prices. |
| base period | A time period against which costs of the market basket in other periods will be compared in computing a price index. |
| Flow variable | A variable that is measured over a specific period of time. |
| Stock variable | A variable that is independent of time. |
| Gross private domestic investment | The value of all goods produced during a period for use in the production of other goods and services. |
| Personal Consumption | A flow variable that measures the value of goods and services purchased by households during a time period. |
| Transfer payments | Payments that do not require the recipient to produce a good or service in order to receive them. |
| Exports | Sales of a country's goods and services to buyers in the rest of the world during a particular time period. |
| Imports | Purchases of foreign-produced goods and services by a country's residents during a particular time period. |
| Trade deficit | Negative net exports, having more imports then exports. |
| Trade surplus | Positive net exports, having more exports than imports. |
| Value added | The amount by which the value of a firms output exceeds the value of the goods and services the firm purchases from other firms. |
| GNP | The total value of final goods and services produced during a particular period with factors of production owned by the residents of a particular country. |
| GNP formula | GNP = GDP + net Foreign income. |
| GDI | The total income generated in an economy by the production of final goods and services during a particular period. |
| Indirect taxes | Taxes imposed own the production or sale of goods and services or on other business activity. |
| Direct tax | A tax imposed directly on income, personal income, or corporate income. |
| Double counting | Occurs when both intermediate and final goods and services are included in GDP. |
