NAIRU: Non-accelerating inflation rate of unemployment. Also known as the natural rate of unemployment. The lowest unemployment rate consistent with not putting upward pressure on prices and wages.
National debt: Total balance of outstanding government obligations, usually from government bonds issued to the public.
National income: Total income received by the factors of production. Employee compensation plus net interest plus rent plus proprietors’ income plus corporate profits.
National income accounting: A system of measurements allowing for comparison of the sizes of different economies, as well as measurements of one economy’s performance over time.
Natural barriers to entry: A reason for a monopoly to exist: one firm can supply the entire market demand more efficiently that two or more competing firms can. Economies of scale. Natural monopoly: A monopoly created by natural barriers to entry.
Natural rate of unemployment: The lowest unemployment rate consistent with not putting upward pressure on prices and wages.
NDP: Net domestic product. Gross domestic product minus depreciation.
Necessity: A normal good with a low income elasticity of demand. Things which are considered as the basic needs for human beings.
Negative correlation: A relationship between variables such that when one variable increases, the other variable decreases.
Negative externalities: Costs accruing to people who are not parties to private transactions.
Net benefit: Excess of benefits over costs.
Net creditor nation: A nation that loans more to all other nations than it borrows.
Net debtor nation: A nation that borrows more from all other nations than it loans. A nation that imports more than it exports.
Net domestic product: NDP. Gross domestic product minus depreciation.
Net exports: Total exports minus total imports. The international sector of an economy.
Net factor income from abroad: Income received by citizens outside the nation’s borders minus income received by foreigners within the nation’s borders. Also known as net foreign factor income.
Net foreign factor income: Income received by citizens outside the nation’s borders minus income received by foreigners within the nation’s borders. Also known as net factor income from abroad.
Net investment: Gross private domestic investment minus capital consumption allowance (or depreciation).
Net national product: (NNP). National income plus indirect business taxes. It is the market value of a nation’s goods and services minus depreciation(often referred to as capital consumption).
Nominal GDP: Total value of GDP measured in current prices.
Nominal interest rate: Actual stated interest rate, equal to the real interest rate plus the anticipated inflation rate.
Nominal value: Value in current prices.
Non-accelerating inflation rate of unemployment: NAIRU. Also known as the natural rate of unemployment. The lowest unemployment rate consistent with not putting upward pressure on prices and wages.
Normal good: A good with a positive income elasticity of demand. A good that people buy more of as income rises.
Normal profits: Profits sufficient to cover opportunity costs and not provide an incentive to change output levels, or cause entry or exit in an industry.
Normative statement: A statement of opinion, not facts; statements that include value judgments. Stating “what ought to be”. The opposite of a positive statement.
Oligopoly: A market structure characterized by few firms, each relatively large compared to the overall market size, with relatively difficult entry into the market and at least some control over the prices it sells its product for.
Open market operations: Monetary policy involving the sales and purchases of government bonds.
Opportunity cost: The value of the next best (forgone) choice.
Optimal bundle: In demand analysis, the point on the budget line that touches the outermost indifference curve, indicating a maximum benefit to the consumer.
Output gap: The amount by which actual GDP is below potential GDP. Also known as a GDP gap or a GDP output gap.
Overnight funds: Money borrowed by a bank from another bank, or the central bank, to cover an unexpected shortage of reserves.
Paradox of Saving: Another name for Paradox of Thrift.
Paradox of Thrift: A theory stating that during a recession, a planned increase in savings can cause actual savings to decrease. Also known as Paradox of Saving.
Parallel economy: Economic activity that is not reported for tax purposes and is not included in official government statistics. Also known as the black market, underground economy, hidden economy, shadow economy, and informal economy.
Patent laws: Laws granting monopoly power to creators of new products or processes for a period of time, currently 17 years in the United States.
Peak: The point in the business cycle where expansion ends, and the level of real GDP is maximized for that business cycle.
Per capita: A value divided by the total population, to calculate an average per person.
Perfect competition: A market structure characterized by many firms, each too small to influence the market price, producing identical products, with ease of entry into the market. Considered to be the most efficient market structure, although real life examples are difficult to find.
Perfect substitutes: Products of different firms for which no differences exist in the view of consumers. Identical products.
Perfectly elastic: An elasticity value equal to infinity.
Perfectly inelastic: An elasticity value equal to zero.
Personal income: PI. National income minus income earned but not received plus income received but not earned.
Phillips Curve: A downward sloping curve indicating a trade-off between inflation and unemployment.
Physical capital: Manufactured products such as machinery and equipment that are used in the production of other products. Also known in economics simply as capital.
Planning horizon: Another name for the long run.
Positive correlation: A relationship between variables such that both variables change in the same direction.
Positive externalities: Benefits accruing to people who are not parties to private transactions.
Positive statement: A statement of facts, without including opinions or value judgments. The opposite of a normative statement.
Precautionary demand for money: The amount of money that the public prefers to hold for spending in emergency situations.
Price ceiling: A price control that sets a maximum price that is allowed to be charged. A common example would be rent control.
Price controls: Government restrictions on the prices that can be charged on specific goods and services. Price discrimination: The practice of charging different prices to different groups of consumers based on different demand elasticity.
Price elasticity of demand: A measurement of the responsiveness of quantity demanded to a change in price. Also known as elasticity of demand.
Price floor: A price control that sets a minimum price that is allowed to be charged. A common example would be a minimum wage.
Price index: A number assigned to represent the average price level at a specific point in time in order to measure the rate of inflation.
Price leadership: A method for firms in oligopoly to cooperate with one another. One firm, called a price leader, changes its price and other firms follow suit.
Price maker: A firm with significant market power to set its own price.
Price taker: A firm with no market power; it has to accept the price that is established by the market.
Private benefit: A benefit received by a party to a transaction.
Private cost: A cost paid by a party to a transaction.
Private sector: The portion of the economy that does not include the government.
Prisoner’s Dilemma: Game theory model used to explain the behavior of firms in oligopoly.
Producer: A private/government organization that produces goods and / or services. The term as used here is interchangeable with firm, business firm, company, enterprise, and business.
Producer Price Index: (PPI). A measurement of changes in the prices received by producers. A leading economic indicator for inflation. Formerly known as the Wholesale Price Index.
Producer surplus: The difference between the price the sellers are willing to sell the product for and the price that the sellers actually receive.
Producer’s tax: A tax levied on sellers.
Production bottlenecks: The inability of firms to increase output in the short run due to a lack of excess capacity.
Production Possibilities Curve: (PPC). An economic model that shows graphically the various combinations of two goods that can be produced using a given level of resources.
Productive efficiency: Using the least cost combination of resources to produce a specific level of output.
Productivity: The amount of output per unit of input.
Profit: The excess of total revenue over total cost. Prohibitive barriers to entry: Barriers to entry in an industry high enough to effectively prevent any entry.
Public sector: The portion of the economy represented by the government.