ECON 295 Chapter 19: Chapter 19 notes.docx
9 Jan 2015
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Nominal (current-dollar) national income: total national income measured in current dollars: aggregating total output. A change in this measure can be caused by a change in physical quantities or a change in prices. Real (constant-dollar) national income: national income measured in constant (base-period) dollars. We will focus on real national income: national income: recent history. One of the most common measures of national income gross domestic product = gdp. Business cycle: fluctuations of national income around its trend value that follow a more or less wavelike pattern: potential output and the output gap. National output represents what the economy actually produces. Potential output ( y *): the real gdp that the economy would produce if its productive resources land, labour and productive capacity- were employed at their normal levels of utilization. Output gap: actual national income minus potential national income, y y * Recessionary gap: a situation in which actual output is less than potential output, y
