AP MACRO - 11

gross domestic product

value of final goods/services produced in a year per country

national income (NI)

total value of goods/services produced by a country’s residents

personal income (PI)

money income received before PI taxes

disposable income

money households have after paying taxes and essential expenses

expenditure approach

method of calculating GDP,

C + I + G + (X-M)

income approach

method of calculating GDP

NI + depreciation - subsidies + net income of people with citizenship outside of the country

net domestic product

total economic output after depreciation

GDP - Depreciation

aggregate income

total income earned by individuals/households in an economy during a specific period

aggregate expenditure

total spending in an economy in a specific period

C + I + G + (X - M)

labor force

everyone employed/actively seeking employment

unemployed

individual willing and able to work, made effort to seek work in past 4 weeks

labor force participation rate

working age population seeking employment/employed

labor force / # fo people in working age population

unemployment rate

(# unemployed workers / # in labor force) x 100

frictional unemployment

short term, voluntary employment. in between jobs/entering workforce for the first time.

structural unemployment

unemployment resulting from changes in the economy that render certain skills/industries useless

cyclical unemployment

unemployment due to downturns in the business cycle (depressions/recessions)

seasonal unemployment

temporary unemployment due to reduced demand for certain skillsets at certain times of the year

discouraged workers

willing and able to work, but has given up. doesnt count as unemployed

dishonest workers

claim unemployment for benefits, but are either working under the table or does not wish to be employed

natural rate of unemployment

typical rate of unemployment in a functioning economy

full employment

not 100%, but where everyone that wants a job can get a job. no cyclical unemployment

okun’s law

1% increase in unemployment = 2% decrease in GDP

inflation

sustained increase in overall price level

deflation

sustained decrease in overall price level

nominal salary

face value of salary, number of dollars

real salary

purchasing power of salary

money illusion

equating nominal salary with real salary

effects of inflation

menu costs, fixed incomes have less purchasing power, value of interest payments don’t increase (hurting lenders/savers), increased societal tensions, increased shoe leather costs, unit of account becomes unstable

menu costs

costs associated with changing price listings

shoe leather costs

costs & time used to minimize cash on hand & converting it to other assets (going to the bank, buying goods, etc)

unit of account

standard monetary unit used to measure of value of goods/services etc.

consumer price index

measures average change in prices over time for “market baskets” of typical goods used by consumers in a base year

(cost of market basket in current year/

cost of market basket in base year) x 100

base year

year used for comparison

real GDP

GDP adjusted for inflation

(nominal GDP/CPI for the same year (as nominal figure) ) x 100

producer price index

tracks changes in prices that producers receive/pay for goods

GDP deflator

measures money price of all goods/services produced in relation to their real price

(nominal GDP / real GDP) x 100

business cycle

recurring cycles of economic activity, characterized by expansions (booms) and contractions

classical economists

believe in free trade, competition, and minimal government interference

say’s law

classical economics, states that supply creates demand

keynesian analysis

aggregate demand (total spending) is primary driver of economic output & employment. gov interference can stabilize economy