Economie, Key terms and definitions

Key terms and definitions

Macroeconomics: the allocation of a nation’s resources, concerned with five main variables (economic growth, employment, price stability, external stability and income distribution)

Output method: measures the actual value of the goods and services produced; calculated by summing all of the value added by all the firms in an economy

Income method: measures the value of all the incomes earned in the economy

Expenditure method: measures the value of all spending on goods and services in the economy; calculated by summing up the spending by all the different sectors in the economy:

(C + I + G + (X-M))

Gross domestic product (GDP): The total value of all final goods and services produced in  a country’s economy, regardless of who owns the productive assets.

Gross national product (GNP): The total income that is earned by a country’s factors of production regardless of where the assets are allocated.

Gross national income (GNI): A better term for GNP or GDP + net property income from abroad

Net national income (NNI): GNI - depreciation (the loss in value of an asset)

Depreciation: the loss of value of an asset (capital consumption)

Nominal GDP: value of GDP at current prices

Real GDP: Nominal GDP adjusted for inflation

Nominal: value at current prices

Real: variable has been adjusted for inflation, making it possible to compare data over time

GDP per capita: A measure of the standard of living or GDP/population (output per person)

Green GDP: A measure of GDP that takes into account any environmental costs incurred from the production of the goods and services included in the GDP figures or GDP minus environmental costs of production.

Business cycle: in developed country economies we can generally see a pattern where there are periods of rising economic growth, followed by periods of slowing growth and even falling growth.

Recovery: economic expansion, with GDP increasing at a rising rate.

Boom:

Recession: two consecutive quarters of negative GDP growth

Trough: end of a contraction

Contraction:

Expansion:

Output gap: difference between actual output and potential output

Disposable income: income after the deduction of direct taxes and transfer payments

Net property income from abroad: income earned by assets held in foreign countries

Property income from abroad: income earned by assets in foreign countries minus income paid to foreign assets operating domestically

GDP deflator: the ratio of nominal GDP to real GDP of a year times 100. A comprehensive price index which measures the average level of prices of all goods & services included in the GDP of a country.

Aggregate demand: the total spending on goods and services from all sectors in an economy in a period of time at a given price level: AD = ((C + I + G + (X-M))

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