AP Macro Unit 2 Exam

GDP

the total market value of all final goods and services produced within a country's economic territory over a specific period

Factor Market

Houses sell factors of production in exchange for wages/income

Firms buy factors of production

Factors of production

Land, labor, capital, entrepreneurship

Goods & Services Market

Firms sell goods & services in exchange for revenue

Households buy goods & services

Ways to Calculate GDP

Values-Added, Income, Expenditure Approach

Income Approach for National Income

National Income = Wages + Rent + Interest + Profit

Expenditure Approach for GDP

GDP = Consumption + Investment + Gov Spending + Net Exports

What’s not included in GDP?

Used products, illegal goods, foreign goods, intermediate goods, stocks, real estate, gov welfare payments

Labor Force

LF = Employed + Unemployed (actively seeking)

Unemployment rate

UR = Unemployed / LF * 100

Types of Unemployment

Structural, Frictional, Cyclical

Structural Unemployment

Long-term unemployment due to structural change in economy (advanced technology, skills mismatch)

Frictional Unemployment

Temporary unemployment when people are transitioning between jobs

Cyclical Unemployment

Unemployment due to recessions and economic dips

What’s part of the natural rate of unemployment?

frictional & structural unemployment

What’s part of the actual rate of unemployment?

frictional, structural, and cyclical

Consumer Price Index

Given Year’s Market Basket / Base Year’s Market Basket * 100

Inflation Rate

Current CPI - Previous CPI / Previous CPI * 100

Nominal Inflation Rate

Unadjusted inflation rate 

Real Inflation Rate

Adjusted inflation rate

Who benefits from inflation?

Borrowers with fixed-rate debt & the government

Who hurts from inflation?

Lenders, savers, people on fixed income

Nominal GDP

Current Price * Current Quantity

Real GDP

Base Price * Current Quantity