The national income and product accounts, a system that tracks the flows of money among the major sectors of the economy.

A simplified model showing how money moves between households and firms through the product and factor markets.

A person or group of people who share income and make consumption and saving decisions together.

An organization that produces goods and services for sale.

Markets where firms sell the finished goods and services they produce to households.

Markets where households sell the factors of production, such as labor, land, and capital, to firms.

Household spending on final goods and services.

A share representing partial ownership of a company.

An IOU issued by a borrower that promises to repay the lender with interest.

Payments the government makes to households, such as Social Security, without receiving a good or service in return.

Household income after taxes are subtracted and transfers are added; the amount available to spend or save.

The portion of disposable income that households do not spend on consumption.

The banks, stock markets, and bond markets that channel private savings toward borrowers and investment.

Money the government raises by selling bonds to cover the gap between spending and tax revenue.

Government spending on goods and services.

Goods and services produced domestically and sold to other countries, bringing funds into the economy.

Goods and services bought from other countries, sending funds out of the economy.

Stocks of goods and raw materials that firms hold for future sale or use; counted as investment.

Spending on new productive physical capital, such as machinery and buildings, plus changes in inventories.

Goods and services sold to the final user; only these count toward GDP.

Inputs used up in producing other goods; excluded from GDP so output is not double-counted.

The total market value of all final goods and services produced within a country during a given period.

A producer's sales value minus the cost of its intermediate inputs; adding up value added across all producers yields GDP.

GDP can be found by summing value added by all producers, summing spending on domestic final goods, or summing all income paid to factors of production; all three give the same total.

The expenditure approach to GDP: consumer spending plus investment plus government purchases plus net exports.

Exports minus imports; the international trade component of GDP.

The economy's total quantity of final goods and services produced.

The value of final output measured using the prices of a fixed base year, which strips out the effect of price changes.

The value of aggregate output measured using current-year prices.

Real GDP divided by population; a gauge of average output per person, though not an appropriate goal in itself.

The method of computing real GDP by averaging the growth rates obtained from an early base year and a late base year.

First developed in the United States, GDP accounting has since become a standard tool for economic analysis and policymaking around the world.

People who currently hold a part-time or full-time job.

People who do not have a job but are actively looking for work.

The sum of the employed and the unemployed.

The percentage of the population aged 16 and older that is in the labor force.

The percentage of the labor force that is unemployed and actively seeking work.

Nonworking people who have given up searching for a job and therefore are not counted as unemployed.

People who want to work and have looked recently but are not currently searching, so they are left out of the labor force.

Workers who hold part-time jobs but want full-time work, or who work below their skill level.

It can overstate joblessness by counting people still searching after receiving an offer, and understate it by ignoring discouraged, marginally attached, and underemployed workers.

The unemployment rate tends to fall when real GDP grows faster than average and rise when growth is below average.

The time and effort workers spend looking for a suitable job.

Short-term unemployment that arises as workers search for jobs, including new entrants and those between jobs.

Unemployment resulting from a persistent surplus of workers at the going wage, caused by factors such as minimum wages, unions, and efficiency wages.

Above-equilibrium wages firms pay to raise productivity and reduce turnover, which contributes to structural unemployment.

The sum of frictional and structural unemployment; the unemployment that remains even when the economy is healthy.

The portion of unemployment that rises and falls with the business cycle.

The natural rate of unemployment plus cyclical unemployment.

The natural rate changes over time with labor force characteristics, labor market institutions, and government policies.

Unemployment rates differ sharply by age, region, and demographic group, and are typically higher for the youngest and oldest workers than for those in their prime years.

The annual percentage change in the aggregate price level.

When wages and incomes rise along with prices, real wages and real income are unchanged, so a rising price level by itself does not reduce overall purchasing power.

The wage rate adjusted for inflation, reflecting actual purchasing power.

Income adjusted for inflation.

The resources wasted when high inflation drives people to make extra trips and take extra effort to minimize their cash holdings.

The real cost to businesses of updating their listed prices when inflation is high.

Costs that arise when high inflation makes money a less reliable yardstick for measuring value.

Because long-term contracts are written in dollars, higher-than-expected inflation benefits borrowers and hurts lenders, while lower-than-expected inflation does the reverse.

The stated interest rate on a loan, not adjusted for inflation.

The nominal interest rate minus the rate of inflation.

The process of bringing down a high inflation rate, which is very costly, so policymakers try to avoid high inflation in the first place.

A single measure summarizing the overall level of prices in the economy.

A fixed set of goods and services used to track how prices change over time.

The cost of the market basket in a given year divided by its cost in a base year, multiplied by 100.

The most common measure of the aggregate price level, tracking the cost of a basket bought by a typical urban household.

Economists disagree about whether the CPI overstates true inflation, for example by not fully accounting for consumer substitution and quality improvements.

A price index for goods and services purchased by firms, often an early warning of future consumer inflation.

A price measure equal to nominal GDP divided by real GDP, times 100.

Extreme inflation episodes, such as 1980s Israel and Zimbabwe, drove people to spend cash almost immediately, a vivid illustration of shoe-leather costs.