Definitions Macro Flashcards
National Income Accounting
Measurement of an economy’s national income and output as well as other measures of economic performance by specialised statistical services in every country.
National Output
Total output produced by an economy, also known as aggregate output, often measured by real GDP.
National Income
The total income of an economy, consisting of factor payments or the sum of wages, interest, rent plus profit, often used interchangeably with the value of aggregate output, particularly in the context of macroeconomic models (such as the AD- AS model).
Output Approach
A method used to measure the value of aggregate output of an economy, which calculates the value of all final goods and services produced in the country within a given time period. As suggested by the circular flow model, it is equivalent to measurement by the expenditure approach and the income approach.
Expenditure Approach
A method used to measure the value of aggregate output of an economy, which adds up all spending on final goods and services produced within a country within a given time period (C + I + G + (X - M)). As suggested by the circular flow model, it is equivalent to measurement by the output approach and the income approach.
Income Approach
A method used to measure the value of aggregate output of an economy, which adds up all income earned by the factors of production in the course of producing all goods and services within a country in a given time period. As suggested by the circular flow model, it is equivalent to measurement by the expenditure approach and the output approach
Gross Domestic Product (GDP)
A measure of the value of aggregate output of an economy, it is the market value of all final goods and services produced within a country during a given time period (usually a year); may be contrasted with gross national income (GNI).
Gross National Income (GNI)
A measure of the total income received by the residents of a country, equal to the value of all final goods and services produced by the factors of production supplied by the country’s residents regardless of where the factors are located; GNI = GDP plus income from abroad minus income sent abroad. May be contrasted with gross domestic product (GDP).
Nominal GDP
Gross domestic product measured in terms of current (or nominal) prices, which are prices prevailing at the time of measurement. Does not account for changes in the price level; to be distinguished from real GDP.
Nominal GNI
Gross product national income in terms of current (or nominal) prices, which are prices prevailing at the time of measurement. Does not account for changes in the price level; to be distinguished from real GNI
Real GDP
Gross domestic product (GDP) measured in constant prices, i.e. prices that prevail in one particular year, called a ‘base year’; this is useful for making comparisons of changes in GDP over time that have taken into account the influence of changing prices; to be distinguished from nominal GDP.
Real GNI
Gross national income (GNI) measured in constant prices, i.e. prices that prevail in one particular year, called a ‘base year’; this is useful for making comparisons of changes in GNI over time that have taken into account the influence of changing prices; to be distinguished from nominal GNI.
GDP Per Capita
Gross domestic product divided by the number of people in the population; is an indicator of the amount of domestic output per person in the population.
Purchasing Power Parities
Special exchange rates between currencies that makes the buying power of each currency equal to the buying power of US$1, and therefore equal to each other. The use of PPP exchange rates to convert GDP (or GNI or any other output or income variable) eliminates the influence of price level differences across countries and is very important for making cross-country comparisons.
Price deflator
A price index used to convert nominal values into real values, such as nominal GDP into real GDP, known as the ‘GDP deflator’
Business Cycles
(Short-term) fluctuations in the growth of real output, or real GDP, consisting of alternating periods of expansion (increasing real output) and contraction (decreasing real output).
Recession
An economic contraction, where there is falling real GDP (negative growth) and increasing unemployment of resources which last six months or more.
Long-term growth trend (business cycle)
In the business cycle diagram, refers to the line that runs through the business cycle curve, representing average growth over long periods of time; shows how output grows over time when cyclical fluctuations are ironed out. The output represented by the long-term growth trend is known as potential output.
Potential Output
The level of output (real GDP) that can be produced when there is ‘full employment’, meaning that unemployment is equal to the natural rate of unemployment; also known as the full employment level of output.
Natural Rate of Unemployment (NRU)
Unemployment that occurs when the economy is producing at its potential or full employment level of output (real GDP), and is equal to the sum of structural, frictional plus seasonal unemployment.
OECD Better Life Index
An alternative measure to standard national income accounting that measures economic well-being in a number of dimensions that take into account quality of life.
Full employment (PPC vs AD-AS model)
(i) In the production possibilities model, refers to maximum use of all resources in the economy to produce the maximum quantity of goods and services that the economy is capable of producing (production possibilities), implying zero unemployment.
(ii) In the AD-AS model, refers to the natural rate of unemployment, or unemployment of labour that prevails when the economy is producing potential output, or real GDP, determined by the position of the LRAS curve (when the economy is in long equilibrium).
