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Economists use a lot of jargon: terms like GDP, production, output, productivity, and unemployment, to name just a few. It's important to understand what's meant when these terms are used, so we've included some definitions and examples in this section: CapitalCapital is just another name for machinery, equipment, factories, institutions, airports, railroad tracks, dams, and other structures or facilities used in production. Investment in new capital or more efficient use of existing equipment is one way of increasing an industry's output. Constant (real) dollar estimatesGDP estimates are usually expressed in constant or real dollars. This means that the numbers have been adjusted to remove the effects of price changes over time. An increase or decrease in a constant dollar value indicates that there has actually been a change in the quantity of a good or service produced. All of the price effects have been removed. The GDP figures used in this resource are valued in constant 1997 dollars. Adjusting for inflation (price changes): calculating constant dollar estimatesHow do we remove the effects of price changes over time? Let's take an example: suppose a pair of shoes cost $75 in 1997, but that the price of the same type of shoes was $150 in 2005. The increase in the price of the shoes is called inflation.
Suppose further that a retailer sold $75,000 worth of these shoes in 1997, but $150,000 worth of shoes in 2005. Does this mean that the retailer's business has doubled? The answer to that question is no. The same number of shoes (1,000) was sold in each year, but if you just looked at the sales figures, you might think that the retailer did a lot more business in 2005. You can take out the effect of the price increase by expressing the value of shoe sales in constant 1997 dollars. This is done by multiplying the base year (1997) price of $75 by the number of shoes sold (1,000) in 2005 to get the constant dollar value of sales, which is $75,000 in 1997 dollars. The constant dollar value of sales is unchanged from 1997, because the same number of shoes was sold in each year. Economic growthEconomic growth is just another term for the percentage change in the size of the economy, as measured by GDP, over time (usually from year to year). Economic growth can be the result of increased use of labour and capital, or may be due to productivity improvements. The economy regularly experiences ups and downs. This pattern of GDP growth and decline is often called the business or economic cycle. When the economy stalls, we usually describe it as being in a slowdown; when it's in a recession, the economy has been shrinking for a period of at least half a year. Employment (work force)Employment is often measured in terms of the number of people working in a particular industry. In this resource, the terms work force, jobs and employment are all used to describe the number of people who work in a particular industry or sector. EstablishmentWhen we talk about a business establishment, we're referring to the smallest operating entity for which financial records are reported. Usually, that's the same as the physical location where a company operates. Some companies (like hair salons, clothing stores, or fish farms) might have only one establishment. Other companies, however, can have many establishments in different parts of the province. For example, Sears is a single retail company that has many different business locations, or establishments, in BC and other parts of Canada . Establishment size is often measured in terms of the number of people who work at a particular job site. Those with fewer than 20 employees are considered to be small businesses. Establishments with 20-100 employees are mid-size, and large establishments have 100 or more workers on staff. In some industries, most of the jobs are in large establishments. In others, you're more likely to be one of a small group of workers. Statistics on employment by establishment size don't include the self-employed. Self-employed people are most likely to be operating a small business. Full-time and part-time employmentEmployment counts don't necessarily tell the full story, because not everyone who has a job spends the same amount of time at work. Two part-time workers who each work half a week don't do twice as much work as one full-time worker, even though they are counted as two employees. Full-time workers are people whose jobs involve at least 30 hours of work each week. People who are employed part-time spend less than 30 hours a week on the job. Goods sectorThis includes all primary and secondary industries. An industry that harvests, extracts, or transforms raw materials into a product that can be handled or stored is a goods-producing industry. Gross domestic product (GDP), or value addedGross domestic product (usually referred to as GDP) is a measure of the value added to the economy by an industry. It is usually expressed in billions of dollars. The terms value added and GDP are sometimes used interchangeably. GDP is the standard measure of the size and performance of the economy. Imputed rental incomeImputed rental income is an estimate of how much rent a homeowner would have to pay for the house or condo he or she lives in. A more complete explanation of imputed rental income and why it's included in GDP can be found in the New Economy segment where it describes the finance, insurance, real estate and leasing industry. IndicesIndices are often used to show how the value of something changes over time. They are calculated by taking the ratio of the value of a given series in the current period to its value in the base year, the year that's being used as the basis for the comparison. The series is then multiplied by 100. In our example, the price of the shoes increased from $75 in 1997 to $150 in 2005. Let's suppose the shoes cost $90 in 1997. A price index could be calculated by dividing the prices in 1997, 2000 and 2005 by 75, the cost of the shoes in our base year of 1997, and then multiplying by 100 (see Table 1). IndustriesBusinesses that produce similar types of goods or services are usually grouped together into industries. A classification system called the North American Industry Classification System (NAICS) is used to determine which industry a particular business establishment belongs to. The classification is based on the main product that's produced or sold by the establishment. NAICS is hierarchical. There are many small industries that have been defined within each of main industry groups. In the example we used earlier in this section, the mill working factory would be classified as part of the other wood product manufacturing industry, which in turn is part of the wood product industry, a sub-group of manufacturing. You'll find more details on how industries are defined in Appendix 2. InputsInputs used in the production process include all the goods and services used by the company. Labour, capital and materials are the three main inputs used in production. In our mill working example, the inputs include:
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