Key Terms
Macroeconomic externality
When the macro outcome is different from and inferior to what individual micro-level decisions would suggest.
Misery Index
Inflation rate + unemployment rate. A rough measure of economic pain.
GDP
Production within a country's borders. Doesn't matter who owns it.
Trade surplus
Exports > imports. Trade deficit: imports > exports.
Durable goods
Last 3+ years (cars, refrigerators). Nondurable goods: last less than 3 years (food, clothing).
GNP
Production by a country's citizens and firms, wherever they are located. Formula: GNP = GDP + income earned abroad by do
NNP
GNP minus depreciation. Formula: NNP = GNP - depreciation
Given
C = $400B, I = $60B, G = $120B, X = $100B, M = $120B, Income receipts from abroad = $10B, Income payments abroad = $8B,
Depreciation
The process by which physical capital ages and loses value. Personal income: income to individuals only (subset of natio
Nominal GDP
Measured using actual prices at the time. Raw dollar figures.
Or rearranged
GDP Deflator = (Nominal GDP / Real GDP) x 100
Example
Real GDP 1960 = 543.3 / (19.0/100) = 543.3 / 0.19 = $2,859.5B
REAL-TO-NOMINAL FORMULA
Nominal Value = Price x Quantity of Output
Peak
The high point before a recession begins. Trough: the low point before a recovery begins.
Business cycle
The movement from peak to trough and trough to peak.