Unit 2 AP MARCO

When was Macroeconomics created?

**The field of macroeconomics was born during the** __**Great Depression**__**.**

Why study the whole economy?

1. **Measure the health of the whole economy.**
2. **Guide government policies to fix problems.**

What are all countries’ three major economic goals?  

1. **Promote Economic Growth**
2. **Limit Unemployment**
3. **Keep Prices Stable (Limit Inflation)** 

**What is Gross Domestic Product (GDP)?**

**GDP is the dollar value of all final goods and services produced within a country’s borders in one year.**

**What is One Year-GDP?**

**Measures annual economic performance.**

**What are Final Goods?**

**GDP does not include the value of intermediate goods.  Intermediate goods are goods used in the production of final goods and services.**

**What is Dollar value?**

**GDP is measured in dollars.**

**Intermediate Goods** 

No Multiple Counting, Only Final Goods

What are examples of **Intermediate Goods?**

**Price of finished car, not the radio, tire, etc.** 

What are **Nonproduction Transactions?**

**Financial Transactions (nothing produced)**

**Used Goods**

What is an example of Used Goods?

**Old cars, used clothes**  

What is an example of Financial Transactions?

**Stocks, bonds, Real estate**

What is an example of **Non-Market (Illegal) Activities?**

**Illegal drugs, unpaid work, babysitting (literally anything that you are paid in cash that the IRS does not tax)**

Name Two Ways of calculating GDP:

\-Expenditures Approach

\-Income Approach

(Both ways generate the same amount since every dollar spent is a dollar of income.)

Expenditures Approach

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

Income Approach

Add up all the income that resulted from selling all final goods and services produced in a given year.

What are **Investments?**

**When** __**businesses**__ **put money back into their own business.**

What is an example of **Government Spending?**

**Bombs or tanks,** ***NOT social security***

**How do you calculate Net Exports?**

**Exports (*****X*****) – Imports (*****M*****)**

Who calculates national income and product accounts?

Bureau of Economic Analysis, a division of the U.S. government’s Department of Commerce.

What is National income?

tracks the spending of consumers, sales of producers, business investment spending, government purchases, and a variety of other flows of money among different sectors of the economy.

What diagram is this?

Expanded Circular-Flow Diagram

What is a household?

a person or group of people who share income.

What is a Firm?

is an organization that produces goods and services for sale.

What is Product markets?

are where goods and services are bought and sold.

What is Factor markets?

are where resources, especially capital and labor, are bought and sold.

What is Consumer spending?

is household spending on goods and services.

. So, for example, the total flow of money out of households—the sum of taxes paid, consumer spending, and private savings—must equal the total flow of money into households—the sum of wages, profit, interest, rent, and government transfers.

in what three ways does the world participates in the U.S. economy?

\-First, some of the goods and services produced in the United States are sold to residents of other countries.

\-Second, some of the goods and services purchased by residents of the United States are produced abroad.

\-Third, foreigners can participate in U.S. financial markets. Conversely, foreign borrowing—borrowing by foreigners from U.S. lenders and purchases by Americans of stock in foreign companies—leads to a flow of funds out of the United States to the rest of the world.

What is Real GDP?

**is GDP expressed in constant, or unchanging, dollars.**  

What is Nominal GDP?

**is GDP measured in current prices.  It does not account for inflation from year to year.**

**What is Inflation?**

**A rising general level of prices.**

**What is Real GDP per capita?**

**is real GDP divided by the total population. It identifies on average how many products each person makes.** 

What is the **best way to measure a nation’s standard of living?**

**Real GDP per capita**

What affects Productivity?

1. Technology
2. Economic System


3. Capital
4. Human Capital (Knowledge)
5. Natural Resources

How do you calculate **The Unemployment rate?**

**Who is in the Labor Force?**

* **Above 16 years old**
* __**Able**__ **and** __**willing**__ **to work**
* **Not institutionalized (jails, hospitals)**
* **Not in military, in school full time, or retired**

**Why is a stay at home mom/dad not unemployed?**

**Cause they aren’t actively looking for a job.**

What is **Frictional Unemployment?**

**“Temporarily unemployed” or being between jobs.** 

**Individuals are qualified workers with transferable skills but they aren’t working.** 

What is  **Structural Unemployment?**

**Changes in the structure of the labor force make some skills obsolete.**

**Workers** __**DO NOT**__ **have transferable skills and these jobs will never come back.**

**What is Seasonal Unemployment?**

**This is a specific type of frictional unemployment which is due to time of year and the nature of the job.**

What is **Technological Unemployment?**

**Type of structural unemployment where automation and machinery replace workers causing unemployment**

**Cyclical Unemployment**

**Unemployment that results from economic downturns (recessions).**

**As demand for goods and services falls, demand for labor falls and workers are fired.**

**What are the Two ree types of unemployment that are unavoidable?**

**Frictional unemployment**

**Structural unemployment**

**What makes up the natural rate of unemployment?**

**Frictional unemployment**

**Structural unemployment**

What is “normal” unemployment?

**The number of jobs seekers equals the number of jobs vacancies.**

What is the “normal” unemployment rate?

**4-6% Unemployment = Full Employment**

**What is wrong with the unemployment rate?**  

**It can misdiagnose the actual unemployment rate because of the following:**

**-Disgruntled job seekers**

**-Part-Time Workers** 

**-Race/Age Inequalities**

**-Illegal Labor**

what is **“market basket”?**

**is made up of about 300 commonly purchased goods**

**What is The Inflation Rate?**

**% change in prices in 1 year**

**They also compare changes in prices to a given base year (usually 1982)**