Definition Sheet Chapter 2: The Data of Macroeconomics - Stock: a quantity measured at a point in time - Flow: a quantity measured per unit of time - Gross Domestic Product (GDP): Market value of all final goods and services produced within an economy in a given period of time o Computed every three months by Bureau of Economic Analysis o Sources: administrative data (tax collection, education program, defense,etc.) and statistical data (surveys of retailers, manufacturers and farms) - Product Approach: a firm’s value added is the value of its output minus the value of the intermediate goods the firm used to produce that output - Consumption (C): the value of all goods and services bought by households - Durable goods: last a long time o Ex: cars, home appliances- Nondurable goods: last a short time o Ex: food, clothing - Services: work done for consumers o Ex: dry cleaning, air travel - Investment (I): Spending that creates new capital o Investment does not include purchases that merely reallocate existing capital o Spending on goods bought for future use - Business Fixed Investment: Spending on plant and equipment that firms will use to produce other goods and services - Residential fixed investment: spending on housing units by consumers and landlords - Inventory Investment: the change in the value of all firms’ inventories - Government Spending (G): includes all government spending on goods and services…o Excludes transfer payments (e.g., unemployment insurance payments), because they do not represent spending on goods and services - Net Exports (NX = EX – IM): the value of total exports (EX) minus the value of total imports (IM)- Imputed Value: an estimated value for goods and services that do not have a market price o Example: we use the wages of police officers to estimate the value of their services. - Depreciation: the amount of worn-out physical capital that has been replaced - Gross National Product (GNP): total income earned by the nation’s residents, regardless of where located - Gross Domestic Product (GDP): total income earned by domestically-located factors of production, regardless of nationality. o GNP = GDP + (factor payments from abroad) – (factor payments to abroad) - Factor: factors of production, labor, capital, land, and entrepreneurial talents - Factor payment from abroad: wages, profits, interests and dividends received by a US national from a foreign country o Example: an investor receives dividends from foreign companies he owns - Factor payment to abroad: wages, profits, interests and dividends paid to foreign nationals - Nominal GDP: measures the value of all final goods and services using current prices - Real GDP: measures the value of all final goods and services using the prices of a base year - Inflation rate: the percentage increase in the overall level of prices - GDP Deflator: weighted average of prices - Consumer Price Index (CPI): another measure of the overall level of prices - Substitution Bias: The CPI uses fixed weights, so it cannot reflect consumers’ ability to substitute toward goods whose relative prices have fallen - Introduction of New Goods: the introduction of new goods makes consumers better off and, in effect, increases the real value of the dollar. But it does not reduce the CPI, because the CPI uses fixed weights - Unmeasured Changes in Quality: Quality improvements increase that value of the dollar, but are often not fully measured - Producer Price Index (PPI): measures the average change over time in the selling prices received by domestic producers for their output - Core Inflation: A CPI measure that excludes food and energy products o Food and energy prices are too volatiles- Working-age Population: Total number of people aged 16 years and over who are not in a jail, hospital, or some other form of institutional care - Labor Force: the number of people employed plus the number employed - Not in the Labor Force: not employed, not looking for work - Unemployment Rate: percentage of the labor force that is unemployed - Labor Force Participation Rate: the fraction of the adult population that “participates” in the labor force - National Income Accounting: The accounting system that measures GDP and many other related statistics - National Income Accounts Identity: The equation showing that GDP is the sum of consumption, investment, government purchase, and net