1. Real Income is the nominal income adjusted for inflation (Wessels, 2000, 81-82).
2. The Labor Participation Rate is the number of individuals who are willing to work, are working, or are actively looking for work (Investopedia, 2005).
3. Structural Unemployment occurs if consumers change the goods they buy, thereby reducing jobs previously available in producing the goods they no longer want, but increasing jobs elsewhere; or technological progress makes the skills of some wnrkers obsolete (Wessels, 2000, 87).
4. National Income is the total value of a nation's income in one year (Definitions, 2005).
5. An Intermediate Good is one whose demand goes up as income increases (Wessels, 2000, 49-50).
6. The consumer Price Index (CPI) measures the cost of a market basket of consumer goods and services (Wessels, 2000, 78-80). It is updated every two years, and is based on a period two years before that. The formula for calculating the CPI is:
Cost of basket in Present year x 100
For example, if the basket cost $6000 in 2004, and cost $3000 in
7. If the CPI is 144.3 in one year, and 158.1 in the next year,
Inflation rate = 9.5 percent (Wessels, 2000, 78)
8. The gross domestic product (GDP) can be computed three ways:
the expenditures approach is to add up the spending on goods and services by households, businesses, governments and foreigners, using the formula:
where C = household consumption spending; I = business investment spending; G = government purchases; NX = net exports (Wessels, 2000, 66-68).
The second way is the incomes approach Method One: first depreciation is subtracted from the GDP to take account of the fact that our capital stock wears out a little each year (capital consumption allowance). Next, indirect business taxes which include sales taxes and any other taxes not based on income are subtracted, giving the formula:
GDP = Depreciation - Indirect Business ...