Unit 2 Terms

Business Cycle (components)

Upward and downward movements of levels of GDP and overall economic activity over time

Recession

A significant and widespread decline in economic activity across the economy, lasting more than a few months

Economic Depression

An extreme, long-lasting form of economic downturn defined by a drop in annual GDP of 10% or more, or a contraction lasting three or more years

Economic Growth

The permanent increase in a country’s capacity to produce goods and services over time

Gross domestic product

Total market value of all final goods and services produced within a country’s borders during a specific time period

Intermediate goods

Products or components used as inputs by businesses to make other goods or finished products

Final goods

Finished products purchased by their ultimate end user to satisfy needs or for investment

Expenditure approach

Measures a country’s GDP by adding all final spending on goods and services within a specific period

Income Approach

Measures a country’s GDP by adding up all the money earned by the factors of production in an economy

Nonmarket transactions

Productive economic activities that happen outside of regular, formal markets and don’t involve official market prices or monetary exchanges

Government purchases

Direct expenditures by federal, state, and local governments on final goods and services

Disposable personal income

The total money a household has left for spending or saving after paying personal income taxes

Labor force

The total number of people who are either currently employed or actively looking and available for work

Unemployment

Measures the percentage of the labor force that is actively searching for work but cannot find a job

Structural unemployment

Long-term form of joblessness caused by fundamental, permanent shifts in an economy that create a mismatch between worker skills and available job openings

Cyclical unemployment

Share of worker layoffs and joblessness caused by the natural ups and downs of business cycle

Discouraged workers

An individual who wants and is able to work, but has stopped looking for a job because they believe no suitable jobs are available

Full-employment real output

The maximum amount of goods and services an economy can sustainably produce when its resources are used efficiently

Natural rate of unemployment

Baseline level of unemployment that persists in a healthy, growing economy due to normal labor market turnover and structural mismatches

Consumer Price Index (CPI)

Measures the average change over time in prices paid by urban consumers for a fixed market basket of consumer goods and services

Inflation

A sustained increase in the general price level of goods and services in an economy over time

Deflation

A sustained decrease in the general price level of goods and services across an economy

Inflation rate

The percentage change in the overall price level of goods and services in an economy over a specific period

Real Wages

A worker’s nominal wages adjusted for inflation, measuring the actual amount of goods and services they can buy

Nominal GDP

Measures a country’s total economic output using current market prices

Real GDP

An inflation-adjusted economic metric that measures the total value of all final goods and services produced by a country in a given year, using constant prices from a base year

GDP deflator

The price index that measures overall price inflation or deflation for all domestically produced final goods and services in an economy