AP MACRO UNIT 2

mr smith chs 2026

businesses only

what the erm investment applies to in the GDP formula

not included in gdp

transfer payments, nonproduction goods(used), nonmarket and illegal activities (things made at home), intermediate goods (like tires that were bought to put on tire before selling)

private sector

part of the economy that is run by individuals and businesses

public sector

part of the economy that is controlled by the government

factor payments

payments for the factors of production, namely rent, wages, interest, and profit

transfer payments

when the government redistributes income (welfare, social security)

subsidies

government payments to businesses

do individuals supply or demand

both they demand products and supply resources (time)

do businesses supply or demand

both, they supply products and demand resources

who demands in the product market?

individuals and the government

who supplies in the product market?

businesses

three goals of countries in macro

promote economic growth, limit unemployment, and keep prices stable (limit inflation)

gross domestic product (GDP)

dollar value of all final goods and services produced within a country in one year

dollar value

GDP is measured in dollars

final goods

GDP only counts NEW goods and services

within a country

GDP measures production within the country’s borders

one year

GDP measures annual economic performance

% change in GDP

year one - year two / year one. times 100

GDP per capita

per person

what is the best measure of a nation’s standard of living

GDP per capita

GDP divided by the population

it identifies on average how many products each person makes

economic system

capitalism promotes innovation and provides incentives to improve productivity

rule of law

countries with solid institutions and political stability have had historically more economic growth

capital stock

countries that have more machines and tools are more productive

human capital

countries that have better education and training are more productive

natural resources

in general countries that have access to more natural resources are more productive

productivity

output per unit of input

expenditure approach

add up all the spending on final goods and services produced in a given year

GDP

consumer spending + business investments + government spending + (exports - imports)

durable goods

cars, washing machine, refrigerator (CS)

nondurable goods

food, clothes, toilet paper (CS)

services

dental work, repairs, tutoring (CS)

inventories

goods produced and held in storage in anticipation of later sales

government expenditures

tracks spending made in the public sector. includes payments made by government for goods and services. does not include welfare, SS, subsidies, or interest payments on national debt

nonmarket transactions

many goods and services provide value but dont count in GDP

unemployment

workers that are actively looking for a job but aren’t working

unemployment rate

number of unemployed divided by number in labor force (unemployed + employed) X100

who is in the labor force

at least 16 years old, able and willing to work, not institutionalized (hospital or jail), not in military or school full time or retired

frictional unemployment

temporary unemployment or between jobs, individuals are qualified workers with transferable skills

structural unemployment

changes in the labor force make some skills obselete, skills are not transferrable

structural and frictional

goes together

cynical unemployment

caused by a recession or depression, demand defiency unemployment

natural rate of unemployment

4-6% frictional and structural

NRU natural rate of unemployment

focuses on output and not having too much unemployment

NAIRU non accelerating inflation rate of unemployment

focuses on inflation and not having too little unemployment

CUR discouraged workers

some people are no longer looking for a job because they have given up

CUR underemployed workers

someone who wants more hours but can’t get them is still considered employed

CUR race/age inequalities

overall unemployment rate doesn’t show disparities for minorities and teenagers

labor force participation rate

percent of the population in the labor force