Macro Unit 2 IDs

Gross Domestic Product (GDP)

The total value of all final goods and services produced with in a country in a specific time period. (Within the country only) GDP= C (consumption)+I (investment) + G (government spending) + Xn (net exports)

CIrcular Flow Model

A graphic representation of how different units of the economy interact.

Gross National Product

An estimate of total value of goods and services produced by the country’s residents both at home and abroad. (Includes things made out side of the country) GNP= GDP + NR (net income from assets abroad)

Factors of Production

Labor, land, capital, and entrepreneurship

Product Market

When the consumers exchange goods and services with products

Resource Market

When businesses purchase the resources they desire to produce the goods consumers demand.

Consumption

The final purchase of a good or service

Expenditures Approach

A method of calculating gross domestic production (GDP) by summing the amount spent on final goods and services within an economy during a particular period, usually a year. GDP= C (consumption)+I (investment) + G (government spending) + Xn (net exports)

Income approach

An approach to calculating GDP that involves adding up all of the income earned through the factors of production; GDP= W (wages) + R (rents) + I (interest) + Pr (profits)

Value added approach

An approach to calculating GDP by determining the value of goods and services and subtracting the good and services there were used in generating that output. GDP= Value of production - Value of intermediate good.

Economic Wellbeing

Consists of the material living conditions that people experience and their access to goods and resources

Intermediate Goods

Ones used to produce final goods ~ Used to calculate GDP using the Value-added approach

Final goods

Ones sold to the consumer who will actually use it.

Nonmarket Transactions

Domestic activities such as cooking, cleaning, and childcare make up a large share of economic activities

Underground Economy

the part of a country's economic activity that is unrecorded and untaxed by the US government; the black market.

Unemployment Rate

The percentage of the labor force not working. 4% or under is ok unemployment rate anything over is bad.

Labor Force

People who are able to and willing to work

Frictional Employment Rate

Times when people are not working due to transitions such as a move from school to work. (Why it is ok to have a 4% unemployment rate)

Structural Unemployment Rate

Occurs when there is a mismatch between the jobs that are available and the people looking for work. such as the decline of a particular industry

Cyclical Unemployment

Happens when the demand for goods and services in an economy decreases, forcing companies to lay off workers in an effort to cut costs.

Seasonal Unemployment

Occurs when people are unemployed at particular times of the year when demand for labor is lower than usual, like people who work at spirit halloween

Labor Force Participation Rate

Compares the size of the labor force with the number of people who could potentially be part of the labor force

Full Employment Rate

A condition where anyone who wants to work can get work

Natural Rate of Unemployment

The accepted unemployment rate ~ 4% or under

Inflation

An overall rise in the price of goods and services

Consumer Price Index (CPI)

A measure that tracks the average change in price of a gap of consumer goods and services.

CPI= (Cost of market basket in year/Cost of market basket in base year) x 100

Inflation Rate

The rate of increases in price over a given period of time

Real Variables

The actual value of a good/service including inflation

Deflation

An overall drop in the price of goods and services

Disinflation

A marginal reduction in the inflation rate over a short period of time

Demand-Pull Inflation

When demand for goods or services rises faster than the supply of those goods and services.

Aggregate Demand

The total demand for all finished goods and services that consumers want at current prices

Ad= C (consumption) + I (investment) + G (government spending) + (X (total exports) - M (total imports))

Aggregate Supply

The total amount of goods and services suppliers want to supply at those prices.

Cost-Push Inflation

occurs when overall prices increase (inflation) due to increases in the cost of wages and raw materials

Inflationary Spiral

When inflation leads to more inflation

Nominal GDP

Quantifies the total value in money of all goods produced in a year.

Nominal GDP = C (consumption) + I (investment) + G (govermnet spending) + (X (net export) - N (net import))

Real GDP

Quantifies the total value in money of all goods produced in a year, including deflation/inflation

Real GDP = Nominal GDP/GDP Deflator

GDP Deflator

Measures the change in prices of goods and services, including those exported to another country.

GDP Deflator = (Nominal GDP/Real GDP) x 100

Real GDP Per Capita

A measure of a country’s output per person. Calculated by dividing a country’s GDP per person

Recession

A significant decline in economic activity

Expansion

A phase of increasing employment, economic growth, and pressure for price increases

Peak

The maximum growth stage of the economy

Contraction

A phase that is generally characterized by increasing unemployment, decreasing economic activity, and declining economic output.

Trough

The lowest point in economic activity

Recovery

The eventual upward direction of the economy following the trough

Depression

A prolonged recession

Output Gap

The difference between the economy’s actual output and the potential output

Actual Output

What has been achieved in reality

Potential Output

How much the economy could ideally produce if it used all its resources including employees, natural resources, equipment, and technology