Macroeconomics

Production function:

The mathematical relation-

ship showing how the quantities of the factors of

production determine the quantity of goods and

services produced; for example, Y

 F(K, L).

Production smoothing:

The motive for holding

inventories according to which a firm can reduce its

costs by keeping the amount of output it produces

steady and allowing its stock of inventories to re-

spond to fluctuating sales.

Profit:

The income of firm owners; firm revenue

minus firm costs. (Cf. accounting profit, economic

profit.)

Public saving:

Government receipts minus gov-

ernment spending; the budget surplus.

Purchasing-power parity:

The doctrine accord-

ing to which goods must sell for the same price in

every country, implying that the nominal exchange

rate reflects differences in price levels.