AP Macro Unit 2

Real GDP

GDP adjusted for inflation

Nominal GDP

GDP measured in current prices

Exports

Goods and Services sold to other countries

GDP

Gross Domestic Product- the total market value of all final goods and services produced annually in an economy

GDP per capita

Gross domestic product divided by the number of people in the population.

Value Added

The gross value of the product minus the costs of raw materials and energy.

Inflation

a general increase in prices and fall in the purchasing value of money.

producer price index

a measure of the cost of a basket of goods and services bought by firms

GDP deflator

a measure of the price level calculated as the ratio of nominal GDP to real GDP times 100

price index

a measurement that shows how the average price of a standard group of goods changes over time

business cycle

a period of macroeconomic expansion followed by a period of contraction

household

a person or group of people living in a single residence

market basket

a representative collection of goods and services

economic growth

a steady, long-term increase in real GDP

circular flow diagram

a visual model of the economy, shows how dollars flow through markets among households and firms

Unemployed workers

adults who do not have a job but who are looking for work

Consumer Price Index

an index of the cost of all goods and services to a typical consumer

Firm

an organization that uses resources to produce a product, which it then sells

firm

an organization that uses resources to produce a product, which it then sells

intermediate goods and services

are goods and services bought from one firm by another firm to be used as inputs into the production of final goods and services

unit-of-account costs

arise from the way inflation makes money a less reliable unit of measurement

Consumer Spending

buying goods and services from domestic firms and from firms in the rest of the world

Household

consists of either an individual or group of people who share their income

private savings

equal to disposable income minus consumer spending, is disposable income that is not spent on consumption

net exports

exports minus imports

financial markets

financial institutions through which savers can directly provide funds to borrowers

final goods and services

goods and services sold to the final, or end, user

Imports

goods produced abroad and sold domestically

consumer spending

household spending on goods and services from domestic and foreign firms.

Factor Markets

in which firms buy the resources they need to produce goods and services

discouraged workers

individuals who would like to work but have given up looking for a job

National accounts

keep track of the flows of money between different sectors of the economy

unemployment rate formula

number of unemployed/labor force x 100

Government transfers

payments that the government makes to individuals without expecting a good or service in return

government transfers

payments that the government makes to individuals without expecting a good or service in return

employed

people are currently holding a job in the economy, either full time or part time

unemployed

people not working who have looked for work during previous 4 weeks

Investment spending

spending on new productive physical capital, such as machinery and structures, and on changes in inventories

investment spending

spending on new productive physical capital, such as machinery and structures, and on changes in inventories

Inventories

stocks of goods and raw materials held to facilitate business operations

product market

the arena of exchange in which households purchase goods and services from firms

menu costs

the costs of changing prices

cyclical unemployment

the deviation of unemployment from its natural rate

Private savings

the income that households have left after paying for taxes and consumption

shoe leather costs

the increased costs of transactions caused by inflation

nominal interest rate

the interest rate as usually reported without a correction for the effects of inflation

real interest rate

the interest rate corrected for the effects of inflation

factor markets

the markets where productive resources are bought and sold

14 inflation rate

the percentage increase in the price level from one year to the next

inflation rate

the percentage increase in the price level from one year to the next

unemployment rate

the percentage of the labor force that is unemployed

labor force participation rate

the percentage of the working-age population in the labor force

Government borrowing

the total amount of funds borrowed by federal, state, and local governments in the financial markets

labor force

the total number of workers, including both the employed and the unemployed

aggregate output

the total quantity of goods and services produced in an economy in a given period

Government purchases of goods and services

total expenditures on goods and services by federal, state, and local governments

Disposable income

total income households have left after paying taxes and receiving government transfers

13. frictional unemployment

unemployment that occurs when people take time to find a job

Frictional Unemployment

unemployment that occurs when people take time to find a job

structural unemployment

unemployment that results because the number of jobs available in some labor markets is insufficient to provide a job for everyone who wants one

cyclical unemployment

unemployment that rises during economic downturns and falls when the economy improves

Product markets

where goods and services are bought and sold

Underemployed

working at a job for which one is over-qualified, or working part-time when full-time work is desired