AP Macroeconomics - Unit 2 Vocabulary (copy)

Nominal GDP

Nominal GDP

The value of current production at the current prices

Real GDP

The value of current production, but using prices from a fixed point in time

Base year

The year that serves as a reference point for constructing a price index and comparing real values over time.

Price index

A measure of the average level of prices in a market basket for a given year, when compared to the prices in a reference (or base) year.

Market Basket

A collection of goods and services used to represent what is consumed in the economy

GDP Price Deflator

The price index that measures the average price level of the goods and services that make up GDP.

Business Cycle

The periodic rise and fall (in four phases) of economic activity

Expansion

A period where real GDP is growing.

Peak

The top of a business cycle where an expansion has ended.

Contraction

The period where real GDP is falling

Trough

The bottom of the business cycle where a contraction has stopped.

Consumer Price Index (CPI)

The price index that measures the average price level of the items in the base year market basket. This is the main measure of consumer inflation.

Inflation

The percentage change in the CPI from one period to the next.

Transfer Payments

When the government redistributes income. (ex. Welfare, social security)

Factor Payments

Payment for one of the four factors of production, namely rent, wages, interest and profit

Subsidies

Government payments to businesses.

Private Sector

Part of the economy that is urn by individuals and businesses.

Public Sector

Part of the economy that is controlled by the actions of the government.

Unemployment

Workers that are actively looking for a job but are not working.

Unemployment Rate

The percent of people in the labor force who want a job but are not working

Frictional Unemployment

Temporary unemployment or being between jobs.

Structural Unemployment

Changes in the labor force because the labor skills are now obsolete

Cyclical Unemployment

Unemployment caused by a recession.

Natural Rate of Unemployment (NRU)

Frictional plus Structural Unemployment. The amount of unemployment that exists when the economy is healthy and growing.

Full Employment Output (Y)

The Real GDP created when there is no cyclical unemployment

Labor Force

Those people who are at least 16 years old, willing and able to work, and are not institutionalized, in the military, in school full-time, or retire.

Circular Flow of Economic Activity

A model that shows how households and firms circulate resources, goods and incomes though the economy. This basic model is expanded to include the G and Foreign sector.

Gross Domestic Product

The market value of the final goods and services produced within a nation in a given year.

Intermediate Goods

Goods that require further modification before they are ready for final use.

Nonmarket transactions

Household work or do-it-yourself jobs are missed by GDP accounting. The same is true of Government transfer payments and purely financial transactions.