ap macro unit 2

Not counted in gdp

used goods, intermediate goods, nonmarket activities, nonproduction transactions

gdp

dollar value of all final goods, and services produced within a country in one year, only counts new goods produced within country bounds

formula measuring growth from year to year gdp

year 2-year1/year 1×100

calculate gdp

expenditures approach

spending on all final goods/services produced within a given year

GDP=c+I+G+(X-M)

(consumer+investment+gov spending(exports-imports)

income approach

add up all income earned from selling all final goods/services produced in a given year GDP=wage+rental+interest+profit income

value added approach

add up all the value added at each stage of the production process

not included in gdp

intermediate goods

products used as inputs in production of other things. gdp only counts final goods

nonproduction transactions not included in gdp

no new goods, and services is provided

nonmarket activities not included in gdp

illegal activities, or products made at home

In the circular flow model, businesses use money from selling goods and services to

pay for factors of production

Which is the largest component of U.S. GDP

consumption

what does gdp per capita measure

ADDDDDDDDDD

ADD 2.2

who is counted in labor force

willing to work, 16 yrs old min, not institutional, not in military, school, or retired

unemployment

people able, and willing to work, but not currently working

frictional unemployment

temporary unemployment, individuals have transferrable skills, but are not working (ex college grad, someone who quits to find better job)

seasonal unemployment

type of frictional caused by time of year, ex lifeguards, ski instructors

structural unemployment

when workers skills do not match jobs available in the economy

cyclical unemployment

caused by downturns in the business cycle. demand for goods/services falls, demand for labor falls

natural rate of unemployment

unemployment that exists when economy is healthy, frictional, and structural unemployment included

factors that can change natural rate of unemployment

cultural/social factors, technological improvements, labor mobility, labor market politics/regulations

unemployment rate formula

number unemploted/ number in labor force*100

inflation

sustained increase in the overall price level of goods, and services in economy overtime

cpi

measures cost of fixed basket of goods like food, housing, clothing, med care. CPI base year is 100, index number not percentage. Most common measurement of inflation, and the cost of living for consumers

cpi formula

price of market masket/price of market basket in base year*100

inflation

prices increase steadily over time

disinflation

prices rising, but at slower rates

deflation

prices decrease

hyperinflation

prices rise rapidly

inflation rate

percent change in prices from year to year

price index

numerical value showing how prices have changed relative to a specific year 

problems with cpi

substitution bias, new products, product quality

nominal wage

wage measured in current dollars, not adjusted for inflation

real wage

wage that has been adjusted for inflation

whos hurt by unanticipated inflation

lenders, people with fixed income, savers

those helped by unanticipated inflation

borrowers, businesses

menu costs (the costs of inflation)

it costs money to change listed prices (new menus, etc)

shoe leather costs (costs of inflation)

people make more frequent trips to the bank to avoid holding money that loses value

unit of account costs

inflation creates confusion bc people cant tell if price changes reflech supply/demand or inflation

nominal gdp

gdp measured in current prices (does not account for inflation from year to year, can rise due to inflation, not actual production)

real gdp

gdp expressed in constant unchanging dollars (adjusted for inflation to show actual growth, better measure)

gdp deflator

index that measures price level of all goods produced, used to convert nominal to real gdp, imported goods excluded

cpi

price index for consumer goods, used to measure inflation affecting household

gdp deflator formula

nominal/real gdp*100

nominal gdp formula

delfator*real gdp/100

real gdp

nominal gdp/deflator*100

business cycle

shows natural rise, and fall of real gdp, reflects short run fluctuations

changes mainly caused by aggregate demand, and aggregate supply

expansion in business cycle

real gdp rising

unemployment falling, inflation rising, may have a inflationary gap

contraction (business cycle)

real gdp falling for atleast 2 quarters(6 months), unemployment rising, inflation falls

may include recessionary gap(when real gdp is below potential output)

Peak (turning point business cycle)

top of cycle before contraction begins (economy is overheating,low unemployment, high inflation)

trough

bottom of cycle before expansion begins

high unemployment, low inflation/deflation

positive output gap

actual>potential, economy is overheating, risk of inflation

negative output gap

actual<potential, economy in recession, high unemployment