TERM DEFINITION

Term Definition



Term Definition

GDP

Gross Domestic Product (GDP) is the total market value of all the final goods and services produced within a nation's borders in a given time period.

Real GDP

Real GDP is the value of final output produced in a given time period? adjusted for changing prices. Real GDP is the inflation adjusted value of nominal GDP. Real GDP is calculated by adjusting the market value of goods and services for changing price.

Unemployment rate

Employment rose in November? and the unemployment rate? at 5.4%? was essentially unchanged? the Bureau Labor of Statistics of the U.S. department of Later announced December 3? 2004. The jobless rate has been either 5.4 or 5.5 percent in each month since July.

Inflation rate

Inflation is defined as an increase in the average level of prices of goods and services in an economy. It is also defined as the overall general upward price movement of goods and services in an economy? usually as measured by the Consumer Price Index and the Producer Price Index.

Interest rate

The Federal Reserve raised interest rates for the fourth time this year and will plan to keep on increasing them in the future. On November 11? 2004 the FED raised its short-term interest-rate target to 2% from 1.75%. Several commercial banks responded by raising the prime rate ? a benchmark for commercial and consumer loans? to 5% from 4.75%. The raise on interest rates did not mean great news for savers. The rates on savings? interest-bearing checking and money-market deposit accounts have hardly budged in recent months? the average pays 0.51%.

The circular flow model illustrates the interaction among the four macroeconomic sectors--household? business? government? and foreign. These four sectors capture four fundamental macroeconomic functions and their expenditures are combined together to purchase the economy's total production.

Household sector: This includes everyone? all people? seeking to satisfy unlimited wants and needs. This sector is responsible for consumption and undertakes consumption expenditures.

Business sector: This includes the institutions (especially proprietorships? partnerships? and corporations) that undertake the task of combining resources to produce goods and services. This sector does the production.

Government sector: This includes the ruling bodies of the federal? state? and local governments. Regulation is the prime function of the government sector? especially passing laws? collecting taxes? and forcing the other sectors to do what they would not do voluntarily.

Foreign sector: This includes everyone and everything (households? businesses? ...