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