Unit 2 Macroeconomics

Macroeconomics

The study of the large economy as a whole, focusing on aggregate variables like GDP, unemployment, and inflation.

Private Sector

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

Public Sector

Part of the economy that is controlled by the government.

Factor Payments

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

Transfer Payments

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

Subsidies

Government payments to businesses.

Gross Domestic Product (GDP)

The dollar value of all final goods and services produced within a country in one year.

National Income Accounting

The methods economists use to collect statistics on production, income, investment, and savings to measure economic growth.

GDP per Capita

GDP divided by the population; it identifies on average how many products each person makes and is a better measure of a nation's standard of living.

Intermediate Goods

Goods inside the final goods that don't count in GDP.

Expenditures Approach

A way of calculating GDP that adds up all the spending on final goods and services produced in a given year.

Income Approach

A way of calculating GDP that adds up all the income earned from selling all final goods and services produced in a given year.

Value-added Approach

A way of calculating GDP that adds up the dollar value added at each stage of the production process.

Consumer Spending (C)

Purchases of final goods and services by individuals.

Business Investment (I)

Businesses spending on tools and equipment.

Government Spending (G)

Payments made by the government for goods and services.

Net Exports (X-M)

Exports minus imports.

Durable Goods

Goods that have a long lifespan (ex: washing machines, refrigerators, cars).

Non-durable Goods

Goods that have a short lifespan (ex: food, clothes, toilet paper).

Inventories

Goods produced and held in storage in anticipation of later sales.

Unemployment

Workers that are actively looking for a job but aren't working.

Unemployment Rate

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

Labor Force

Individuals who are at least 16 years old, able and willing to work, not institutionalized, and not in the military, in school full time, or retired.

Structural Unemployment

Changes in the labor force that make some skills obsolete.

Technological Unemployment

A type of structural unemployment where automation and machinery replace workers.

Natural Rate of Unemployment (NRU)

Frictional plus structural unemployment, which exists when the economy is healthy and growing.

Full Employment Output (Y)

The Real GDP created when there is no cyclical unemployment.

Discouraged Workers

Some people who are no longer looking for a job because they have given up.

Underemployed Workers

Someone who wants more hours but can't get them is still considered employed.

Inflation

Rising general level of prices and it reduces the 'purchasing power' of money.

Deflation

Decrease in general prices or a negative inflation rate.

Disinflation

Prices increasing at slower rates.

Inflation Rate

The percent change in prices from year to year.

Price Indices

Index numbers assigned to each year that show how prices have changed relative to a specific base year.

Consumer Price Index (CPI)

The most commonly used measurement of inflation for consumers.

Nominal Wage

Wage measured by dollars rather than purchasing power.

Real Wage

Wage adjusted for inflation.

Nominal GDP

GDP measured in current prices; it does not account for inflation from year to year.

Real GDP

GDP expressed in constant, or unchanging, dollars; real GDP adjusts for inflation.

GDP Deflator

A measure of the price level calculated as the ratio of nominal GDP to real GDP times 100.

Business Cycle

The national economy goes up and down like a roller coaster over time.

Recession (Contraction)

A six-month period of decline in Real GDP; if really bad, then depression.

Recovery (Expansion)

A period of increasing economic activity in the business cycle.

Peak

The highest point of economic activity in the business cycle.

Trough

The lowest point of economic activity in the business cycle.