Chapter 8 macro definitions Flashcards
Business cycle
The short-term fluctuations of real GDP around its long-term trend (or potential
output).
GNI
The total income received by the residents of a country, equal to the value of all goods and services produced by the factors of production supplied by the country’s residents regardless of where the factors are located
GDP
The value of all final goods and services produced within an economy over a
period of time, usually a year
Purchasing Power Parity
The rate at which the currency of one country would have to be converted into that of another country to buy the same amount of goods and services in each country.
Circular model of income
A simplified illustration that shows the flows of income and expenditures in an
economy
Injections
Within the circular flow model these refer to spending on domestic output that
does not originate from households and thus includes investment spending by
firms, government expenditures and exports.
leakages
Income not spent on domestic goods and services. It includes savings, taxes and
import expenditure.
Income approach
One of the three equivalent ways that GDP can be measured, by adding all the
incomes generated in the production process (wages, profits, interest and rent)
for a given time period.
Output approach
One of the three equivalent ways that GDP can be measured, it adds up the
value of final goods and services produced in a given time period.
Expenditure approach
One of three analytically equivalent approaches of measuring GDP that adds all
the expenditures made on final domestic goods and services over a period of
time by households, firms, the government and foreigners.
Consumption (C)
Spending by households on durable and non-durable goods and on services
over a period of time.
Investment (i)
Spending by firms on capital goods such as machines, tools, equipment and
factories.
Government spending
(G)
Refers to all spending by the government within a country. Includes factors of production, including labour services. Also includes government investment (public investment) e.g. roads, airports power generators)
Net exports (X-M)
Export revenues minus import expenditure. Exports are goods and services produced in a country and so must be included in the measerement of aggregate output. Imports however involve domestic spending on goods and services produced in other countries so must be substracted
