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

Access for free at https://openstax.org/books/principles-economics-3e