Basic Macroeconomic Definitions

Basic Macroeconomic Definitions 

• Goods: things that are tangible. 

• Services: things that aren’t tangible. 

• Gross Domestic Product 

  • The value of the final goods and services produced in the economy during a given period of time. 

  • The sum of value added in the economy during a given period. 

  • The sum of incomes in the economy during a given period. 

• Nominal GDP: the sum of quantities of final goods produced times their current prices. [current price*quantity produced].

• Real GDP: the sum of quantities of final goods times constant prices. [contant price*quantity produced].

• Employment: the number of people who have a job.

• Unemployment: the number of people who do not have a job but are looking for one. 

• Labor force: sum of the employed and the unemployed.

• Unemployment rate: the ratio of the unemployed to the labor force. 

• Participation rate: the ratio of the labor force to the total population of working age. 

• Inflation: a sustained rise in the general level of prices.

• Inflation rate: the rate at which the price level increases. 

• Deflation: the sustained decline in the level of prices. 

• Deflation rate: the rate at which the price level decreases. 

• Aggregate Demand: The total demand for goods and services within an economy at a given overall price level and in a given period.

• Aggregate Supply: The total supply of goods and services that firms in an economy plan on selling during a specific time period.

• Real Income: Income of individuals or nations after adjusting for inflation. It reflects the purchasing power of the income.

• Monetary Policy: Actions taken by a central bank to influence the money supply and interest rates to achieve macroeconomic objectives like controlling inflation, consumption, growth, and liquidity.

• Fiscal Policy: Government adjustments in spending levels and tax rates to influence a nation's economy.

• Budget Deficit: Occurs when a government's expenditures exceed its revenues.

• Budget Surplus: Occurs when a government's revenues exceed its expenditures.

• Interest Rate: The cost of borrowing money, usually expressed as a percentage of the amount borrowed.

• Balance of Trade: The difference between a country's exports and imports of goods.

• Exchange Rate: The price of one currency in terms of another currency.

• Economic Growth: The increase in the inflation-adjusted market value of the goods and services produced by an economy over time.

• Business Cycle: The fluctuation in economic activity that an economy experiences over a period of time, including expansions and contractions.

• Potential Output: The maximum amount of goods and services an economy can produce when it is operating at full efficiency.

• Natural Rate of Unemployment: The long-term rate of unemployment determined by structural and frictional factors in the labor market.