National income accounting - a system that collects

macroeconomic statistics on production, income, investment, and

savings
if there is a firm that sells tires to a car manufacturer, GDP does
not include the values of the tires and the full cars separately for
this will unnecessarily count the tires twice. We either include the
net value added by each firm or just add the value of only the
final goods
Gross domestic product - the dollar value of all final goods and
services produced within a country's borders in a given year
Unpaid work
Intermediate goods - goods used in the production of final goods
Chlorine in the production of polyurethane
Durable Goods - goods that last for a relatively long time
Peanut Butter
Nondurable goods - goods that last a short period of time
Strawberries
Nominal GDP - GDP measured in current prices
Calculating current prices
Real GDP - expressed in constant, or unchanging prices
Bread price doesnt change
Gross national product - the annual income earned by U.S owned
firms and U.S. citizens
Timber is sold to a paper manufacturer
Depreciation - the loss of the value of capital equipment that results
from normal wear and tear
If an asset has original cost of $1000, a useful life of 5 years and
a salvage value of $100, compute its depreciation schedule. First,
determine years' digits. Since the asset has useful life of 5 years,
the years' digits are: 5, 4, 3, 2, and 1.
Price level - the average of all prices in the economy
The average cost of candy is $1
Aggregate supply - the total amount of goods and services in the
economy available at all possible price levels

Changing in unit labor costs

Aggregate demand - the amount of goods and services in the

economy that will be purchased at all possible price levels
Increase in export demand causing an injection
Business cycle - a period of macroeconomic expansion followed by a
period of contraction
American history was the Great depression
Expansion - a period of economic growth as measured by a rise in real
GDP
Expanding the toy market
Economic growth - a steady, long term increase in real GDP
Increase in a price product
Peak - the height of an economic expansion when real GDP stops
rising
When prices stop raising
Contraction - a period of economic decline marked by falling real GDP
Decrease of price
Trough - the lowest point in an economic contraction, when real GDP
stops falling
Lowest point of a toy
Recession - a prolonged economic contraction
Period of unemployment
Depression - a recession that is especially long and severe
Great Depression
Stagflation - a decline in real GDP combined with a rise in price level
Rise in price
Leading indicators - key economic variables that economist use to
predict a new phase of a business cycle
Predicting the business cycle
Real GDP per capita - real GDP divided by the total population
Dividing GDP by population

Capital deepening - process of increasing the amount of capital per

worker
Managing capital
Savings - income not used for consumption
Account in your bank account
Savings rate - the proportion of disposable income that is saved
Taking some of your income and saving it instead of spending
Technological progress - an increase in efficiency gained by
producing more output without using more inputs
Computers
Frictional unemployment - unemployment that occurs when people
take time to find a job
John is trying to find a job because he is unemployed
Seasonal unemployment - unemployment that occurs as a result of
harvest schedules or vacations, when industries slow or shut down for
a season
Losing your job because you go on vacations
Freestyle
Structural employment - employment that occurs when workers'
skills do not match the jobs are available
John doesnt have the right skills for the job
Cyclical employment - unemployment that rises during economic
downturns and falls when the economy improves
Unemployment during the great depression
Census - an official count of the population
Total population in Minnesota
Unemployment rate - the percentage of the nation's labor force that
is unemployed
Labor force that is unemployed
Full employment - the level of employment reached when there is no
cyclical unemployment
When everyone has a job

Underemployed - working for a job for which one is over qualified, or

working part-time when full-time employment is desired
John is over qualified for a job at Target
Discouraged worker - a person who wants a job but has given
looking
Not looking for a job
Inflation - a general rise in prices
Apple prices rise
Purchasing power - the ability to purchase goods and services
Purchasing toys
Price index - a measurement that shows how the average price of a
standard group of goods changes over time
Toy prices changing over time
Consumer price index - a price index determined by measuring the
price of a standard group of goods meant to represent the "market
basket" of a typical urban consumer
Market basket
Market basket - a representative collection of goods and services
Collecting toys
Inflation rate - the percentage rate of change in price level over time
Percentage of change in price
Core inflation - the rate of inflation excluding the effects of food and
energy prices
Food inflation
Hyperinflation - inflation that is out of control
Prices drastically changing
Quantity theory - theory that too much money in the economy
causes inflation
Too much money causes inflation
Demand-pull theory - theory that inflation occurs when demand for
goods and services exceeds existing supplies
Existing supplies

Cost-push theory - theory that inflation occurs when producers raise

prices in order to meet increased cost
When the prices of target brand food needs to meet Kraft goods
Wage-price spiral - the process by which rising wages causes higher
prices, and higher prices causes higher wages
When your wage raises causes more expensive goods
Fixed income - income that does not increase even when prices go
up
When john has the same income
Deflation - a sustained drop in price level
Dramatic drop in prices
Poverty threshold - the income level below which income ice
insufficient to support a family or household
John needs an income to support his family
Poverty rate - the percentage of people who live in households with
income below the official poverty line
When john is living below poverty line
Income distribution - how the nation's total income is distributed
among its population
When the nation divide the income
Food stamps - government issued coupons that recipients exchange
for food
John needs financial help so he is given a coupon for cheaper
food
Lorenz curve - the curve that illustrates income distribution
Curve on a graph that illustrates income distribution
Enterprise zone - area where companies can locate free of certain
local, state, and federal taxes and restrictions
Target can locate free of certain local taxes
Block grant - federal funds given to the states in lump sums
When the state is given a lot of money
Workfare - a program requiring work in exchange for temporary
assistance

Certain program requiring work to exchange assistance