Studied by 9 people
GDP
total value of all finished goods and services produced in a country in 1 year
consumption
people buy finished goods
investment
business purchases (buying capital) and adding goods to inventory, people buying homes
government purchase
goods, services, wages
net exports (NX)
exports minus imports
real GDP
measures GDP using changes in production, not changes in price
nominal GDP
measures GDP using changes in production and price
GDP deflator
(nominal GDP / real GDP)(100)
business cycle
the cycle of economic contraction and expansion
peak
economy is growing and money is circulating
trough
economy is growing at a slower rate
contraction
economic growth is shrinking
expansion
economic growth is increasing
recession
GDP shrinks
leakage
money is taken from circular flow
taxes and imports are examples of
leakages
labor force
all adults who can and want to work
labor force participation rate
labor force / adult population
unemployment rate
percentage of the labor force not working
frictional unemployment
people are “voluntarily” between jobs
indicates a healthy economy with jobs available
structural unemployment
the economy eliminates someones job because of technological advancements/trade
cyclical unemployment
job loss during recession or contraction
full employment
0% cyclical unemployment
inflation
rapid increase in price level or money supply
monetarist equation
money supply = price level
CPI
basket current year
basket base year
LRAS
total potential economic output
all resources efficiently used, full employment (Y*)
SRAS
firms choose output based on cost
AD
consumption + investment + government spending + net exports
supply shock
SRAS shifts left, shocking the economy and driving up prices
demand-pull inflation
AD shifts right and prices go up “later”
cost-push inflation/stagflation
SRAS shifts left and prices rise, followed by less output
selling something from inventory adds ____ to GDP
nothing (positive consumption and negative investment)
Note 
Flashcard (54)