AP MACRO UNIT 2
CPI (Consumer Price Index)
a measure of the overall cost of the goods and services bought by a typical consumer
Business Cycle Graph
a period of macroeconomic expansion followed by a period of contraction
Disinflation
a reduction in the rate of inflation
Calculate Labor Force Participation Rate
labor force/adult population x 100
Circular Flow
the pattern in which goods, services and resources flow in the marketplace
Labor Force Participation Rate
the percentage of the adult population that is in the labor force
Unemployment Rate
the percentage of the labor force that is unemployed
GDP
the total market value of all final NEW goods and services produced annually in an economy
Labor Force
the total number of workers, including both the employed and the unemployed
Calculate Unemployment Rate
unemployed/labor force x 100
Calculate CPI
(cost of basket in current year/cost of basket in base year) x 100
Frictional Unemployment
*A type of unemployment caused by workers voluntarily changing jobs and temporary layoffs *unemployed workers between jobs.
Limitations of CPI as a measure of inflation
*Does not factor in change in quality or substitutes
Structural Unemployment
*unemployment resulting from industrial reorganization, *typically caused by technological change
Limitations of GDP
- Nonmarket Activities - Underground Economy - Negative externalities - Quality of life
circular flow leakages
1)Savings 2)Imports
Not included in GDP
1. Intermediate goods 2. Household production 3. Non-market (illegal) activities 4. Used goods and services
Real GDP formula
Nominal GDP/GDP Deflator x 100
GDP deflator formula
Nominal GDP/Real GDP x 100
Natural Rate of Unemployment
frictional plus structural unemployment *typically 5- 7%
Inflation
A general increase in prices
Deflation
A situation in which prices are declining
GDP formula
C+I+G+(X-M)
Calculate Inflation Rate
CPI this year - CPI last year / CPI last year x 100
Nominal GDP
GDP measured in current prices
limitations of unemployment rate
does not give a good indication of how many people are discouraged(not looking for work) or underemployed.
Calculate Labor Force
employed + unemployed
Phases of the business cycle
expansion-> peak-> contraction-> trough->recovery
Types of Unemployment
frictional structural cyclical
Real GDP per capita
real GDP divided by the total population
Real Variables
variables measured in physical units
inflationary gap
when aggregate output is above potential output
recessionary gap
when aggregate output is below potential output
