Macroeconomics is the study
of the economy as a system.
The labour force is people at work
or looking for work. It excludes
people neither working nor looking
for work. The unemployment rate
is the fraction of the labour force
without a job.
Real gross national product
(GNP) measures the income of an
economy, the quantity of goods
and services the economy can
afford to purchase.
The inflation rate is the
percentage increase in the average
price of goods and services.
The circular flow shows how
real resources and financial
payments flow between firms
and households.
Gross domestic product
(GDP) measures the output
made in the domestic economy,
regardless of who owns the
production inputs.
Value added is the increase in
the value of goods as a result of
the production process.
Final goods are purchased by
the ultimate user, either
households buying consumer
goods or firms buying capital
goods such as machinery.
Intermediate goods are partlyfinished
goods that form inputs
to a subsequent production
process that then uses them
up.
Investment is the purchase of
new capital goods by firms.
A leakage from the circular flow
is money no longer recycled
from households to firms.
An injection is money that
flows to firms without being
cycled through households.
Inventories or stocks are
goods currently held by a firm
for future production or sale.
GDP at market prices
measures domestic output
inclusive of indirect taxes on
goods and services. GDP at
basic prices measures
domestic output exclusive of
indirect taxes on goods and
services. The former exceeds
the latter by the amount of
revenue raised in indirect taxes.
Exports (X) are domestically
produced but sold abroad.
Imports (Z) are produced
abroad but purchased for use
in the domestic economy.
GNP (or GNI) measures total
income earned by domestic
citizens regardless of the
country in which their factor
services were supplied. GNP (or
GNI) equals GDP plus net
property income from abroad.
Depreciation or capital
consumption is the rate at
which the value of the existing
capital stock declines per
period as a result of usage or
obsolescence.
National income is the
economy’s net national
product. It is calculated by
subtracting depreciation from
GNP at basic prices.
Nominal GNP measures GNP
at the prices prevailing when
income was earned.
Real GNP, or GNP at constant
prices, adjusts for inflation by
measuring GNP in different
years at the prices prevailing at
some particular date known as
the base year.
The GNP deflator is the ratio of
nominal GNP to real GNP
expressed as an index.
Per capita real GNP is real
GNP divided by the total
population. It is real GNP per
head.
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