AP Macroeconomics: Unit 2 Review
What type of spending/transactions are calculated in the GDP?
-Consumer -Investment (Spending on productive physical capital or changes in inventories) -Government -Exports -Imports Not Included: IFIF U -Intermediate goods/services -Financial assets/transfer payments -Inputs used up in production -Foreign-produced goods and services -Used goods
If the labor force is 500,000 people and the number of employed is 450,000, what is the unemployment rate?
10%
You get a 10% raise, the inflation rate is 6%, how much did you income increase?
4%
Market Basket
A hypothetical set of consumer purchases of goods and services used to measure changes in overall price.
If inflation is higher than expected who benefits, borrowers or lenders?
Borrowers because they repay their loans with funds that have a lower real value than had been expected
What is CPI and what is it used to measure?
CPI (Consumer Price Index) is the most widely used measure of the overall price level in the U.S. It measures the cost of the market basket of a typical urban American family Price Index = cost of market basket in a given year/ cost of market basket in base year x100% -Can show the cost of living and can estimate inflation rates
What are the four factors of production?
Capital, land, labor, and entrepreneurship
Disposable Income
Equal to income plus government transfers minus taxes, is the total amount of household income available to spend on consumption and to save
Labor force
Equal to the sum of the employed and the unemployed -The people who are currently working and the people who are currently looking for work Labor force participation rate= (Labor force)/(Pop. aged 16 and older) x 100%
What is the formula to calculate GDP?
GDP=C+I+G+X-IM
Intermediate goods and services
Goods and services bought from one firm by another firm to be used as inputs into the production of final goods and services
Imports
Goods and services purchased from other countries -Generates an outflow of funds to the rest of the world
Exports
Goods and services sold to other countries. -Generate an inflow of funds into the country
Final goods and services
Goods and services sold to the final, or end, user
Who demands goods and services in the product market?
Households
Who supplies resources in a market economy?
Households
What are the three causes of inflation?
Money supply increase (govt. prints too much currency), demand pull, cost push
You purchase a cookbook on a recent vacation to Mexico.
N, the U.S. had no part in producing this product
Discouraged workers are?
Nonworking people who are capable of working but have given up looking for a job due to the state of the job market.
Unemployment
People who are actively looking for work but aren't currently employed Unemployment rate= (# of unemployed workers)/(labor force) x 100%
Real wage and income
Real wage: Wage rate divided by the price level to adjust for the effects of inflation or deflation Real income: Income divided by the price level to adjust for the effects of inflation or deflation
Recreate the circular flow model
Sort of like this one
What is cyclical unemployment?
The deviation of the actual wage rate of unemployment from the natural rate. It is the share of unemployment that arises from the business cycle.
Shoe-leather costs
The increased costs of transactions caused by inflation
Inflation rate
The percentage increase in the overall level of prices per year CPI= price level
Aggregate Output
The total quantity of final goods and services produced within an economy -Another name for GDP
Real GDP
The total value of all final goods and services produced in the economy during a given year, calculated using the prices of a selected base year in order to remove the effects of price changes.
GDP
The total value of all final goods and services produced in the economy during a given year. Does not include the value of intermediate goods
What is a firm's goal in a market economy?
To make money by producing goods and services -To maximize profit
What is frictional unemployment?
Unemployment due to the time workers spend in the job search.
What is structural unemployment?
Unemployment that results when workers lack the skills required for the available jobs, or there are more people seeking jobs in a labor market than there are jobs available at the current wage rate.
Underemployment is?
Workers who would like to work more hours or who are overqualified for their jobs. It is the number of people who work part-time because they cannot find full-time jobs.
Canadian tourists buy lunch at a restaurant while visiting San Antonio
Y, C
You enroll in an online defensive driving course to have a ticket dismissed.
Y, C
New spending is used to increase the size of the U.S military by 10%.
Yes, G
