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business cycle
alternating periods of economic expansion and recession
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expansion
period of a business cycles during which total production and total employment are increasing
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recession
period of a business cycle during which total production and total employment are decreasing
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economic growth
ability of an economy to produce increasing quantities of goods and services
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inflation rate
percentage increase in the price level from one year to the next
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gross domestic product
market value of all final goods and services produced ina country during a period of time, typically one year
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final good or service
a good or service purchased by a final user
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intermediate good or service
a good or service that is an input into another good or service, such as a tire on a truck
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transfer payments
payments by the gvmt to individuals for which the gvmt does not recieve a new good or service in return
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consumption
spending by households on goods and services not including spending on new houses
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investment
spending by firms on new factories, office buildings, machinery, and additions to inventory, plus spending by households and firms on new houses
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government purchases
spennding by federal, state, and local gvmts on goods and services
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net exports
exports minus imports
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value added
market value a firm adds to a product
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underground economy
buying and selling of goods and services that is concealed from the gvmt to avoid taxes or regulations or because the goods and services are illegal
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nominal GDP
vakue of final goods and services evaluated at current year prices
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real GDP
value of final goods and services evaluated at base year prices
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price level
a measure of the average prices of goods and services in the economy
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GDP deflator
a measure of the price level, calculated by dividing nominal GDP by real GDP and multiplying by 100
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limitations of GDP as measure of well-being
- Inaccuracy of reported figures
- nonmonetary Transactions not counted
- nonmonetary Costs not subtracted
- Negative items as Positive
- Leisure time not counted
- Junk
- Distribution
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expenditures approach
- C personal consumption expenditures
- I spending on capital (investment) goods
- G government purchases of goods and services
- X-M net exports
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personal consumption expenditures
- durable goods (three years)
- nondurable goods
- services
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spending on capital (investment) goods
- final purchases on new capital equipment
- new construction (including residential)
- changes in business inventories
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government purchases of goods and services
- does not include transfer payments
- includes all levels of gvmt
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net domestic product
GDP minus depreciation
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gross national product
the value of final goods and services produced by residents of the united states even if the production takes place outside of the united states
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