Capital: Equipment, structures, and other long-lived inputs that are used by workers to produce goods and services. Capital is the result of investment. Capital is distinguished from intermediate inputs, which are used up in the course of production. The collective value of all the equipment, structures, and other capital is referred to as the capital stock.
See also human capital, intangible capital, and financial capital.

Capital accumulation: The growth in the capital stock. It equals the existing stock plus new investment less depreciation.

Capital deepening: Increase in the capital-labor ratio.

Consumption: Value of goods and services purchased by consumers.

Deflation: A general decline in prices. See inflation. Periods of deflation have been rare since the 1930s, but were common in the 19^th century.

Depreciation: Decline in the value of capital attributable to use and time. Equipment and other physical capital wear out. Capital may also decline in value over time because new and better capital becomes available, making the existing capital obsolete.

Earnings: Income received by labor for its contribution to production. It consists of wages, salaries, and benefits paid to employees plus the income of self-employed individuals from their labor (as distinct from their ownership of capital).

Earnings inequality: Unequal distribution of earnings among workers. If each worker earns the same amount, earnings are equal. If earnings differ across workers, earnings are unequal, and we have earnings inequality.

Economic growth: The increase over time in economic output. Output may increase because economic inputs have increased or because of technological change.

Economic inputs: Inputs to the production process that makes goods and services. In most discussions of economic growth, economic inputs refer to labor and capital. Sometimes land and other economic inputs are separately identified, but more commonly they are included with capital.

Economic output: The value of final goods and services produced. In comparing output in different time periods, the effect of changes in the price level is removed. GDP is a common measure of economic output.

Financial capital: Financial assets, such as currency, bank accounts, bonds, and stock, that can be used to store wealth and to purchase goods and services or other assets.

Gross domestic product (GDP): A common measure of economic output. It equals the value of all final goods and services produced in a country in a year. "Final" goods include consumption, investment, government purchases, and exports less imports from other countries. In making comparisons over time, the effect of changes in the price level is generally removed. GDP adjusted for changes in the price level is often called real GDP. GDP is a National Income and Product Account (NIPA) concept.

Gross national product (GNP): The value of all final goods and services produced by economic inputs supplied by a country's residents. Whereas GDP refers to the location of production, GNP refers to the ownership of the economic inputs. For the United States, the two measures are very similar. GNP equals GDP plus income received from the rest of the world minus income paid to the rest of the world. GNP is a NIPA concept.

Human capital: The skills and knowledge possessed by workers. Workers acquire these skills both through formal education and through on-the-job and life experiences.

Inflation: Increase in overall price level. Prices of individual goods and services change frequently in response to changes in supply and demand. These price changes convey valuable information to the buyers and sellers of these products. In addition, there may be a general tendency for prices to rise or fall. A general rise in prices is referred to as inflation; a general decline is deflation. In comparing economic output over time, the effect of inflation or deflation should be removed in order to see changes in the quantity and quality of the goods and services produced.

Intangible capital: Inputs to production that are long-lived and have measurable value, but are not physical. Human capital is a form of intangible capital. Conceptually, the body of knowledge accumulated from expenditures on research and development is intangible capital; but its value is not yet routinely measured. Thus, its contribution to production appears as technological change.

Investment: Purchases of capital. Investment requires giving up consumption in the present, but increases in the capital stock will lead to higher output and consumption in the future.

Labor: The workers in the economy who, with the use of capital, produce goods and services. In determining sources of economic growth, labor is the number of worker hours (number of workers x number of hours per worker).

Labor force participation rate: The fraction of the population of working age, currently defined as those 16 years of age and over, who are working or actively looking for work. The definition of the working age population has changed over time. Prior to 1947, the working age population was defined as including those aged 14 and 15. No distinction is made between full-time and part-time work.

Labor productivity: Output per hour, or the value of all goods and services produced relative to the total number of hours worked.

National income: Income earned by labor and capital in the course of production. It equals Gross National Product (GNP) less capital depreciation and indirect business taxes. National income is a NIPA concept.

National income and product accounts (NIPA): A system developed to measure the income and output of a country's economy. NIPA data are used as approximations for many of the concepts used in discussions of growth.

Structures: A component of capital that has been constructed. Structures are generally stationary, often large and complex. Examples include buildings, mine shafts, railroad tracks, and power lines.

Technological change: The increase in economic output that is not attributable to measurable changes in the quality and quantity of the economic inputs. It includes major technological innovations, such as the development of the steam engine; but it also includes the effects of countless small improvements in how business is done.

Value: The price of a single item or a total in which individual items are weighted - or valued - according to their prices. In comparing total values over time, the effects of changes in the price level are removed; so changes in value reflect changes in quantity and quality, and not the effects of inflation or deflation.

By Anne van Grondelle, Senior Research Assistant, and Lynn Browne, Executive Vice President and Economic Advisor, Federal Reserve Bank of Boston, August 2003.