AP Macroeconomics Unit 2 Vocabulary

Income Approach for calculating GDP

Add together Wages + Profits + Interest + Rent (W+P+I+R)

Expenditure Approach for calculating GDP

Adds together Consumption + Investment + Government Spending + Exports - Imports (C+I+G+X-M)

financial account

Part of the balance of payments which consists of purchases and sales of international assets such as stocks, bonds, factories, buildings, and currency by a central bank

current account

Part of the balance of payments which consists of trade in goods and services - net exports, investment income(dividends and interest) and net transfers.

GDP Deflator (Price Index)

a measure of the price level, calculated by dividing nominal GDP by real GDP and multiplying by 100

inflation

a rise in the general level of prices in an economy

cyclical unemployment

a type of unemployment caused by insufficient total spending or insufficient aggregate demand

real (GDP, income, interest rate)

adjusted for inflation

cost-of-living-adjustment (COLA)

automatic increase in the income of workers or pensions when inflation occurs

calculating nominal vs real GDP

current production in current year prices vs. current production in base year prices

discouraged workers

employees who have left the labor force because they have been unable to find employment

net exports

exports minus imports

resource market

households sell and firms buy resources or services

human capital

improvement in labor created by education and knowledge

unanticipated inflation

increases in the price level which occur at a greater rate than expected

anticipated inflation

increases in the price level which occur at the expected rate

demand-pull inflation

inflation caused by there being more demand than there is output at the existing price levels

cost-push (supply) inflation

inflation resulting from an increase in resource costs and in per unit production costs

productivity

output per worker; must increase for economic growth

economic growth

outward shift in the PPC; increase in real output (GDP) or real GDP per capita; caused by increasing quantity or quality or resources, technology, and productivity

recession / contraction

period of declining real GDP with a higher real income and lower unemployment

expansion / recovery

period of increasing real GDP with higher real income and lower unemployment

product market

products are sold by firms and bought by households

final goods

products purchased for final use and not for resale

intermediate goods

products purchased for resale or further manufacturing; not counted in the spending method of calculating GDP because it would cause double counting.

business cycle

recurring increase and decreases in the level of economic activity over periods of years

deflation

reduction in an economy's price level; may occur during a recession

Government Spending

spending by all levels of government on final goods and services

consumption

spending by households on new goods and services, with the exception of purchases of new housing

investment

spending on capital equipment, inventories, and structures, including household purchases of new housing

Net Exports (NX)

spending on domestically produced goods by foreigners (exports) minus spending on foreign goods by domestic residents (imports)

government purchases

the expenditures of all governments in the economy for final goods and services

rule of 70

the number of year it will take for some measure to double, i.e for price level doubling, divide 70 by annual inflation rate

consumer price index (CPI)

the number which measures the prices of a fixed "market basket" of 300+ goods and services bought by a typical consumer

price index

the number which shows how the weighted average of selected goods changes throughout time

unemployment rate

the percentage of the labor force unemployed at any time

potential output

the real output (GDP) an economy could produce when it fully employs its available resources (on PPC)

gross domestic product (GDP)

the total market value of all final goods and services produced annually within a country (eg. USA)

frictional unemployment

type of unemployment caused by temporary layoffs and workers voluntarily changing jobs

nominal (GDP, income, interest rate)

unadjusted for inflation: measured at current price levels

structural unemployment

unemployment of workers whose skills are not in demand, who lack skills to obtain employment or are unable to move to places where jobs are available

full employment - Natural Rate of Unemployment

unemployment rate when there is only frictional and structural unemployment but no cyclical unemployment (real output is equal to potential output)

double (multiple) counting

wrongly including the value of intermediate goods in GDP