Some Basic Concepts
Actual Growth – the annual percentage increase in actual output.
Aggregate Demand – is the relationship between spending on goods and services and the level of prices.
Aggregate Demand Curve – shows the combinations of the price level and level of output at which the goods and assets market are simultaneously in equilibrium.
Aggregate Supply Curve – describes, for each given price level, the quantity of output firms are willing to supply.
Base Year – is the year that is used as the basis of comparison for the level of a particular economic index.
Business Cycle - is the more or less regular pattern of expansion (recovery) and contraction (recession) in economic activity around the path of trend growth.
Capital - that which enables the production of goods and services now and in the future. At any given moment, the economy has a certain overall stock of capital. Ex. Human Capital: Knowledge, education and Non-Human capital: Machines, equipments.
Closed Economy - an economy that neither exports nor imports and has no economic relationship with the rest of the world. Consumer Price Index (CPI) – measures the cost of buying a fixed basket of goods and services representative of the purchases of urban consumers.
Consumption – the total spending by individuals or a nation, on consumer goods during a given period.
Deflation – a fall in the general level of prices.
Depreciation – the decrease in the asset’s value over time; for capital, it is the amount by which physical capital wears out over a given period of time.
Double Counting - when we count the production of a commodity twice, it is called double counting and in order to avoid this only the final value of goods and services are taken into consideration. Economic Development – is a process whereby an economy’s real national income undergoes a sustained increase over a long period of time.
Economic Growth - an upward trend in real GDP, reflecting expansion in the economy over time; it can be represented as an outward shift in the production possibilities curve.
Equilibrium - A state of balance between two opposite forces
Exchange rate – is the rate, or price, at which one country’s currency is exchanged for the currency of another country.
Expenditure Approach - a method of estimating aggregate economic activity by adding together the nominal expenditure of all economic units on newly produced goods and services. Final Goods – a new good that undergoes no further processing before it is sold to consumers.
Flows – a flow is a quantity measured per unit of time.
Full Employment Output – the quantity of real production or real aggregate output produced by the macro economy when resources are at full employment.
Government Final Consumption Expenditure - is the expenditure on the free services provided to the people by the government. The free services are that of police, military, educational institutions, hospitals, roads, bridges, legislatures and other government departments. Government purchases of goods and services - expenditures made by federal, state and local government to purchase goods from private firms and to hire the services of government employees. Gross Domestic Capital Formation - the amount of capital increased during a year is known as capital formation and as depreciation is included in it is called gross domestic capital formation. Gross Domestic Capital Formation = Gross Fixed Capital Formation + Change in stock Of Inventories. Where, Gross Fixed Capital Formation includes:
* New assets (plant, machinery, tools, equipment, building, etc.) produced domestically * Import of new assets
* Net purchase of second hand assets from abroad
Change in Stocks (Inventories) includes:
* Change in stock of raw material
* Change in stock of semi finished goods
* Change in stock of finished goods
* Change in stock of government (like...