AP Macro Unit 2

What is the Private Sector in the economy?

The part of the economy that is run by individuals and businesses.

What is the Public Sector in the economy?

The part of the economy that is controlled by the government.

What are Factor Payments?

Payments for the factors of production (rent, wages, interest, and profit).

What are Transfer Payments?

When the government redistributes income (welfare, social security, etc.).

What are Subsidies?

Government payments to businesses.

What is Gross Domestic Product (GDP)?

Dollar value of all final goods and services produced in one year, measuring only production within a country’s borders.

What is GDP per Capita?

A measure of a country’s output per person that can function as a universal measure of prosperity or standard of living.

What is NOT included in GDP?

Intermediate goods, nonproduction transactions, nonmarket and illegal activities, and transfer payments made by the government.

What is the formula for GDP (Expenditures Approach)?

GDP (Y) = Consumer Spending (C) + Business Investment (I) + Government Spending (G) + Net Exports (X – M).

What is Frictional Unemployment?

Workers who are either in between jobs or waiting to take jobs in the near future.

What is Structural Unemployment?

Unemployment caused by changes in technology or the skills required to work.

What is Cyclical Unemployment?

Unemployment caused by a contraction or recession in an economy because consumers have decreased their spending.

What is Seasonal Unemployment?

Unemployment that occurs due to the season or time of year.

What is the Natural Rate of Unemployment (NRU)?

The amount of unemployment that exists when the economy is healthy.

What is the Labor Force?

The employed (full or part time) and the unemployed (those seeking employment).

What is Inflation?

An overall rise in the price of goods and services.

What is Deflation?

An overall drop in the price of goods and services.

What is Disinflation?

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

What is the Consumer Price Index (CPI)?

An index that measures the prices of a fixed 'market basket' of 300 goods and services purchased by a 'typical' customer.

What is the difference between Nominal and Real variables?

Nominal variables measure dollar amounts not adjusted for inflation, while real variables are adjusted for inflation.

What is the GDP Deflator?

A measurement used to determine price inflation or deflation in relation to a specific year.

What is the formula for calculating the Unemployment Rate?

unemployed workers/total labor force x 100.

What is an Inflationary Spiral?

When inflation leads to more inflation, as workers negotiate higher wages due to price increases.

What is Real GDP?

Nominal GDP adjusted for inflation and deflation.

What is Nominal GDP?

Total value in dollars of all the goods produced in a year, not accounting for inflation.

What is a Business Cycle?

A mix of periods of economic expansion and contraction.

What are the four phases of the Business Cycle?

Expansion, Peak, Contraction, and Trough.

What is an Output gap?

Difference between an economy's actual output and its potential output.