24 Key Terms
Please review the following key terms. (6)
Business cycle
The relatively short-term movement of the economy in and out of recession.
Convergence
Pattern in which economies with low per capita incomes grow faster than economies with high per capita incomes.
Depreciation
The process by which capital ages over time and therefore loses its value.
Double counting
A potential mistake to be avoided in measuring GDP, in which output is counted more than once as it travels through the stages of production.
Economic freedom
A condition in which people are able to make personal choices, their private property is protected, and they are free to buy and sell in markets.
GDP per capita
GDP divided by the population.
Gross domestic product (GDP)
The value of the output of all 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.
Law of diminishing returns
If the quantity of capital is small, an increase in capital brings a large increase in production and vice versa.
National income
Includes all income earned: wages, profits, rent, and profit income.
Nominal value
The economic statistic actually announced at that time, not adjusted for inflation; contrast with real value.
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.
Standard of living
All elements that affect people’s happiness, whether these elements are bought and sold in the market or not.
Trough
During the business cycle, the lowest point of output in a recession, before a recovery begins. (1)