ap macro unit 2

National income and product accounts (NI)

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

National accounts

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

Consumer spending

Household spending on goods and services

Government transfers

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

Disposable income

(Income + government transfers − taxes); the total amount of household income available to spend on consumption and to save

Private savings

(Disposable income − consumer spending); disposable income that is not spent on consumption

Financial markets

The banking, stock, and bond markets that direct private savings and foreign lending into investment spending, government borrowing, and foreign borrowing

Government borrowing

The amount of funds borrowed by the government in financial markets

Government purchases of goods and services

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

Exports

Goods and services sold to other countries

Imports

Goods and services purchased from other countries

Inventories

Stocks of goods and raw materials held to facilitate business operations

Investment spending

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

Final goods and services

Goods and services sold to the final (end) user

Intermediate goods and services

Goods and services bought from one firm by another firm to be used as inputs in producing final goods and services

Gross domestic product (GDP)

The total value of all final goods and services produced in the economy during a given year

Value added (of a producer)

The value of its sales minus the value of its purchases of inputs

Net exports

The difference between the value of exports and imports (X − IM)

Aggregate output

The total quantity of final goods and services produced within an economy

Real GDP

The total value of all final goods and services produced in a year calculated using the prices of a selected base year

Nominal GDP

The total value of all final goods and services produced in a year calculated using the current prices of that year

GDP per capita

GDP divided by the size of the population; the average GDP per person

Employed

People currently holding a job in the economy, either full-time or part-time

Unemployed

People actively looking for work but not currently employed

Labor force

The sum of employed and unemployed people

Labor force participation rate

The percentage of the population aged 16 or older that is in the labor force

Unemployment rate

The percentage of people in the labor force who are not employed

Discouraged workers

Nonworking people capable of working who have stopped looking for a job due to the job market

Underemployed workers

People working part-time because they cannot find full-time jobs

Frictional unemployment

Unemployment due to the time workers spend searching for jobs

Structural unemployment

Unemployment that occurs when there are more people seeking jobs than there are jobs available at the current wage rate

Efficiency wages

Wages set above the equilibrium wage rate to motivate better employee performance

Natural rate of unemployment (NRU)

The unemployment rate resulting from frictional and structural unemployment

Cyclical unemployment

The deviation of the actual unemployment rate from the natural rate due to the business cycle

Real wage rate

The wage rate adjusted for inflation (compared to a base year)

Real income formula

(Nominal income ÷ CPI) × 100

Inflation rate

The percentage rate of change in the price level over time

Shoe-leather costs

Costs of transactions caused by inflation such as time and effort spent trying to avoid holding money

Menu costs

The real costs of changing listed prices

Unit-of-account costs

Costs that arise because inflation makes money a less reliable measure of value

Nominal interest rate

The interest rate actually paid for a loan

Real interest rate

Nominal interest rate minus the rate of inflation

Disinflation

The process of reducing the inflation rate

Market basket

A hypothetical set of consumer purchases of goods and services used to measure price levels

Price index

A measure of the cost of purchasing a given market basket compared to a base year

Consumer price index (CPI)

Measures the cost of a market basket for a typical urban American family

Producer price index (PPI)

Measures changes in the prices of goods and services purchased by producers

GDP deflator

100 × (Nominal GDP ÷ Real GDP)

Circular flow model

A diagram showing the flow of resources, goods, services, and money between households and firms in an economy