ap macro -- unit 3

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GDP

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33 Terms

1

GDP

total value of all finished goods and services produced in a country in 1 year

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2

consumption

people buy finished goods

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3

investment

business purchases (buying capital) and adding goods to inventory, people buying homes

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4

government purchase

goods, services, wages

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5

net exports (NX)

exports minus imports

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6

real GDP

measures GDP using changes in production, not changes in price

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7

nominal GDP

measures GDP using changes in production and price

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8

GDP deflator

(nominal GDP / real GDP)(100)

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9

business cycle

the cycle of economic contraction and expansion

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10

peak

economy is growing and money is circulating

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11

trough

economy is growing at a slower rate

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12

contraction

economic growth is shrinking

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13

expansion

economic growth is increasing

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14

recession

GDP shrinks

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15

leakage

money is taken from circular flow

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16

taxes and imports are examples of

leakages

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17

labor force

all adults who can and want to work

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18

labor force participation rate

labor force / adult population

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19

unemployment rate

percentage of the labor force not working

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20

frictional unemployment

people are “voluntarily” between jobs

indicates a healthy economy with jobs available

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21

structural unemployment

the economy eliminates someones job because of technological advancements/trade

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22

cyclical unemployment

job loss during recession or contraction

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23

full employment

0% cyclical unemployment

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24

inflation

rapid increase in price level or money supply

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25

monetarist equation

money supply = price level

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26

CPI

basket current year


basket base year

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27

LRAS

total potential economic output

all resources efficiently used, full employment (Y*)

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28

SRAS

firms choose output based on cost

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29

AD

consumption + investment + government spending + net exports

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30

supply shock

SRAS shifts left, shocking the economy and driving up prices

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31

demand-pull inflation

AD shifts right and prices go up “later”

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32

cost-push inflation/stagflation

SRAS shifts left and prices rise, followed by less output

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33

selling something from inventory adds ____ to GDP

nothing (positive consumption and negative investment)

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