AP Macroeconomics Unit 2

recession

(contraction) A slowdown in a nation's economy.

recovery

(expansion) A period of renewed economic growth followed by a recession or depression.

Real GDP in 1 year

(nominal GDP x 100) / price index

economic goals

1.economic growth 2.full employment 3.economic efficiency 4.price level stability 5.economic fredom 6.an equitable distribution of income, economic security 7.balance of trade

production possibilities curve

A graph that describes the maximum amount of one good that can be produced for every possible level of production of the other good.

net national product

A measure of all goods and services produced by a country in a year, including production from its investments abroad, minus the loss or degradation of natural resource capital as a result of productivity.

Per capita GDP

A measure of the total output of a country that takes the gross domestic product (GDP) and divides it by the number of people in the country.

circular flow model

A model that shows the flow of goods and services and the interaction among households, businesses, and banks.

stagflation

A period of falling output and rising prices.

deflation

A situation in which prices are declining.

equilibrium

A situation in which the market price has reached the level at which quantity supplied equals quantity demanded.

frictional unemployment

A type of unemployment caused by workers voluntarily changing jobs and by temporary layoffs; unemployed workers between jobs.

capital

An economic system based on private property and free enterprise.

investments

Assets purchased with the goal of providing additional income from the asset itself.

GDP

C + I + G + NX

opportunity cost

Cost of the next best alternative use of money, time, or resources when one choice is made rather than another.

household production

Doing something in the home without pay that takes raw materials along with a family member's skill, experience, knowledge, and household equipment, to produce a useful product or service.

real GDP

GDP adjusted for inflation

Nominal GDP

GDP measured in current prices

nominal GDP

GDP measured in current prices

specialization

Goods and services are produced in better quality, quantity and speed when people focus on producing a few things instead of making everything they want by themselves.

disposable income

Income remaining for a person to spend or save after all taxes have been paid.

unanticipated inflation

Increases in the price level at a rate greater than expected.

anticipated inflation

Increases in the price level that occur at the expected rate.

interest rates

Percentage that is applied to your debt.

standard of living

Quality of life based on ownership of necessities and luxuries that make life easier.

personal income

Salaries and wages as well as investment income and government payments to individuals.

supply

The amount of goods available.

demand

The desire, willingness, and ability to buy a good or service.

injections

The investment, government spending and export revenues that add spending to the circular flow of income.

normative economics

The part of economics involving value judgments about what the economy should be like; focused on which economic goals and policies should be implemented; policy economics.

leakages

The savings, taxes and import spending that remove spending from the circular flow of income.

gross domestic product

The sum total of the value of all the goods and services produced in a nation.

national income

The total income of an economy, often used interchangeable with the value of aggregate output.

classical economic theory

The view that an economy will self-correct from periods of economic shock if left alone.

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

disinflation

a reduction in the rate of inflation.

market basket

a representative collection of goods and services

GDP

can be calculated in 2 ways: -add all consumption, investment and government expenditures plus net exports -add all the incomes received by owners of the productive resources in the economy

Price change

change in CPI / beginning CPI x 100

price change

change in CPI / beginning CPI x 100

inelastic

coefficient < 1

most expensive aspect of GDP

consumer spending

components of GDP

consumption, investment, government purchases, and net exports

GDP

counts only FINAL goods and services ; does not count intermediate goods and secondhand goods.

Index #

current/base x 100

depression

economic situation where the level of output falls to especially low levels and unemployment climbs to very high levels relative to the historical average.

least expensive aspect of GDP

exports - imports

intermediate goods

goods used in the production of final goods.

price indexes

help measure the economy by focusing on levels of inflation and deflation

inferior good

if people's incomes increase, the consumption of this product won't be affected

discouraged workers

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

GDP does include

inventory, C + I + G + NX

Labor force participation rate (LFPR)

labor force/adult population x 100

automation

led to increase unemployment of skilled workers

GDP doesn't include

leisure time

producer price index (PPI)

measure of the changes in price over time that US producers charge for their goods and services.

increase employment and unemployment

more people in the labor force

Real GDP

nominal/price index x 100

GDP Deflator

nominal/real x 100

labor force participation rate (LFPR)

number in labor force / adult population x 100

unemployment rate (UR)

number of unemployed / labor force x 100

central economic problem

people have unlimited wants with limited resources

underemployed workers

people who work part time (might be over-qualified for their job) because they cannot find full-time jobs.

unemployment increases

point inside curve will move closer to the origin

output growth

real GDP year 1 - real GDP year 2 / real GDP year 1 x 100

peak

real output, GDP, is at its highest point of the business cycle.

economic shocks

rise and fall of global housing market; financial sector collapse; global recession.

GDP

same as nations income

unanticipated inflation

savers, lenders, and people on fixed incomes are hurt by this, borrowers gain from this.

positive economics

the analysis of facts or data to establish scientific generalizations about economic behavior.

price level

the average of all prices in the economy.

nominal income

the current dollar amount of a person's income.

measuring employment

the labor force includes: those who work/look for word, does NOT include: elderly, military, those unable to work, kids

full employment

the level of employment reached when there is no cyclical unemployment but unemployment still exists.

trough

the lowest point of real GDP reached during the business cycle. If this is particularly deep, it may be called a depression.

inflation rate

the percentage rate of change in price level over time

macroeconomics

the study of economy-wide phenomena, including inflation, unemployment, and economic growth.

microeconomics

the study of how households and firms make decisions and how they interact in markets.

natural rate of unemployment

the unemployment rate that exists when the economy is at potential GDP

structural unemployment

unemployment that occurs when workers' skills do not match the jobs that are available.

cyclical unemployment

unemployment that rises during economic downturns and falls when the economy improves (BAD unemployment).

consumer price index (CPI)

weighted cost of base-period items in current year / weighted cost of base-period items in base year x 100

real income

what an income will actually purchase after allowing for the effects of inflation.