econ interest rates gdp unemployment

GDP (gross domestic product)

the total value of all goods and services made in a country in one year. shows how strong the economy is (basically shows how much stuff is made and sold)

what counts as gdp

• New goods and services (like a new car or a fresh haircut)

• Made this year (not old stuff)

• Made within the country

• Final products (not parts or materials used to make something else)

what doesnt count as gdp

• Used goods (already counted when first sold)

• Homemade stuff (if not sold in the market)

• Illegal goods or under-the-table jobs

• Intermediate goods (like flour used to make cookies, unless the cookie is sold)

real gdp

gdp adjusted for inflation. shows the economy’s true growth by removing price changes

nominal gdp

gdp measured with current prices. doesn’t adjust for inflation

per capita gdp

gdp divided by the number of people. shows the average income per person

inflation

a general rise in prices over time. makes money buy less

deflation

a general fall in prices. can lead to less spending and slower growth

hyperinflation

extremely fast and high inflation. prices go up very quickly and money loses value

stagflation

when inflation and unemployment are both high at the same time. bad for the economy

unemployment

when people who want jobs cant find one

unemployment rate

the percentage of people in the labor force who don’t have a job but are looking

frictional unemployment

temporary unemployment when people are between jobs

structural unemployment

job loss caused by changes in the economy or new technology (ex. horse jobs are not needed anymore because there’s cars now)

cyclical unemployment

job loss during bad recessions in economy

seasonal unemployment

when people lose jobs because their job is only needed during certain times of the year (ex. lifeguard in summer, ski instructor

what is the healthy rate of unemployment?

4-6%

underemployment

when someone’s who is highly skilled but doesn’t match their job skills (ex. someone who has a doctorate degree working at a gas station)

expansion

when the economy is growing. gdp goes up, businesses hire more, and spending increases

peak

the highest point of the business cycle. the economy is doing its best before a slowdown

contraction (recession)

when the economy shrinks. gdp goes down, jobs are lost, and spending drops

trough

the lowest point of the business cycle. after this, the economy starts growing again

inflationary gap

when the economy is doing too well—spending is higher than what the economy can produce. results in prices rising (inflation) and demand being too hogh

recessionary gap

when the economy is doing too bad—not enough spending to keep everyone working. leads to high unemployment and recession

consumer spending

money people spend on goods and services for themselves (ex. you buy a pizza)

investment spending

money businesses spend to improve—like buying tools,buildings, or machines (ex. buying a new lawnmower for your business)

government spending

money the government spends on goods and services (ex. the government builds a road)

net exports

exports (stuff we sell to other countries) minus imports (stuff we buy from other countries) (ex. u.s. sells tractors to canada = expert, u.s. buys phone from china = import)