An aggregate is the totals of particular economic attributes and in this section we look at some of those.
Income per capita is income per person. It is calculated by dividing a nation’s aggregate income by the number of people in the country.
A recession is a period in which aggregate economic output fails. A worker is officially unemployed if he or she does not have a job, has actively looked for work in the prior 4 weeks, and is currently available for work. The unemployment rate is the factor of the labor force that is unemployed. National income accounts measure the level of aggregate economic activity in a country. The national income and product accounts is the system of national income accounts that is used by the US government. Gross domestic product is the market value of all the final goods and services produced in a country during a given period of time.
Two variables are related by an identity when the two variables are defined in a way that makes them mathematically identical. Factors of production are the inputs to the production process.
Each firm’s value added is the firm’s sales revenue, minus its purchases of intermediate products from other firms.
Consumption is the market value of consumption goods and consumption services that are bought by domestic households. Investment is the market value of new physical capital that is bought by domestic households and domestic firms. Government expenditure is the market value of government purchases of goods and services. Exports are the market value of all domestically produces goods and services that are purchases by households, firms, and governments in foreign countries. Imports are the market value of all foreign-produced goods and services that are sold to domestic households, domestic firms, and the domestic government. The national income accounting identity, \(Y = C + I G + X - M\), decomposes GDP into consumption + investment + government expenditure + exports - imports.
Labor income is any form of payment that compensates people for their work. Capital income is any form of payment that derives from owning physical or financial capital.
Gross national product is the market value of production generated by the factors of production-both capital and labor- possessed or owned by the residents of a particular nation.
Nominal GDP is the total value of production, using current market prices to determine the value of each unit that is produced. Real GDP is the total value of production using market prices from a specific base year to determine the value of each unit that is produced.
Real GDP growth is the growth rate of real GDP. The GDP deflator is 100 times the rate of nominal GDP to real GDP in the same year. It is a measure of how prices of goods and services produced in a country have risen since the base year.
The consumer price index is 100 times the ratio of the cost of buying a basket of consumer goods using target year prices divided by the cost of buying the same basket of consumer goods using base year prices.
The rate of increase in prices is the inflation rate. It is calculated as the year over year percentage increase in a price index.
Macroeconomics is the study of economic aggregates and the economy as a whole. An aggregate is a total. Macroeconomic studies total economic activity.
Gross domestic product is the market value of the final goods and services produced in a country during a particular period of time. GDP is defined in 3 equivalent ways: Production = Expenditure = Income. The circular flow diagram explains these identities and adds a fourth identical way of measuring economic activity: factors of production.
GDP is just a summary measure of economic activity and economic well being. GDP leaves many details out, including depreciation, home production, the underground economy, externalities, inequality, leisure, and cross-border movements of capital and labor. Nevertheless, residents of countries with relatively high levels of GDP per capita report relatively high levels of life satisfaction.
Economists distinguish nominal values from real values. Real GDP measures the market value of economic production holding prices fixed at those of a particular base year. The GDP deflator is a measure of the overall level of prices in the economy. The consumer price index is another measure of the overall level of prices. Both the GDP deflator and the CPI can be used to measure the overall rate at which prices are rising: the inflation rate.