Key Terms

business cycle

the economy's relatively short-term movement in and out of recession

depreciation

the process by which capital ages over time and therefore loses its value

depression

an especially lengthy and deep decline in output

double counting

a potential mistake to avoid in measuring GDP, in which output is counted more than once as it travels through the stages of production

durable good

long-lasting good like a car or a refrigerator

exchange rate

the price of one currency in terms of another currency

final good and service

output used directly for consumption, investment, government, and trade purposes; contrast with “intermediate good”

GDP per capita

GDP divided by the population

gross domestic product (GDP)

the value of the output of all final goods and services produced within a country in a year

gross national product (GNP)

includes what is produced domestically and what is produced by domestic labor and business abroad in a year

intermediate good

output provided to other businesses at an intermediate stage of production, not for final users; contrast with “final good and service”

inventory

good that has been produced, but not yet been sold

national income

includes all income earned: wages, profits, rent, and profit income

net national product (NNP)

GNP minus depreciation

nominal value

the economic statistic actually announced at that time, not adjusted for inflation; contrast with real value

nondurable good

short-lived good like food and clothing

peak

during the business cycle, the highest point of output before a recession begins

real value

an economic statistic after it has been adjusted for inflation; contrast with nominal value

recession

a significant decline in national output

service

product which is intangible (in contrast to goods) such as entertainment, healthcare, or education

standard of living

all elements that affect people’s happiness, whether people buy or sell these elements in the market or not

structure

building used as residence, factory, office building, retail store, or for other purposes

trade balance

gap between exports and imports

trade deficit

exists when a nation's imports exceed its exports and it calculates them as imports –exports

trade surplus

exists when a nation's exports exceed its imports and it calculates them as exports – imports

trough

during the business cycle, the lowest point of output in a recession, before a recovery begins