AP Macroeconomics – Unit 2 Review: Economic Indicators and the Business Cycle

Vocabulary flashcards covering key macroeconomic terms from Unit 2: GDP concepts, unemployment, inflation, CPI, and interest rate concepts.

GDP (Gross Domestic Product)

The total market value of all final goods and services produced within a country in a given time period.

Nominal GDP

GDP measured in current prices; does not account for inflation.

Real GDP

GDP adjusted for inflation; reflects actual productivity.

GDP Deflator

A price index used to adjust nominal GDP to real GDP.

Expenditures Approach

GDP calculation method that adds consumer spending, investment, government spending, and net exports (C + I + G + (X – M)).

Income Approach

GDP calculation method that adds all income earned by factors of production.

Value-Added Approach

GDP calculation method that sums the value added at each stage of production.

Business Cycle

The recurring pattern of economic growth and decline (expansion, peak, contraction, trough).

Unemployment

The percentage of the labor force that is jobless and actively looking for work.

Labor Force

The total number of people employed and unemployed (actively seeking work).

Labor Force Participation Rate

The percentage of the population that is in the labor force.

Frictional Unemployment

Temporary unemployment as workers move between jobs.

Structural Unemployment

Long-term unemployment due to changes in the economy that reduce demand for certain skills.

Cyclical Unemployment

Unemployment caused by downturns in the business cycle.

Natural Rate of Unemployment (NRU)

The unemployment rate when the economy is producing at full employment (includes frictional and structural).

Full Employment

The level of employment reached when there is no cyclical unemployment.

Inflation

A general increase in prices and fall in the purchasing value of money.

Deflation

A general decrease in the price level.

Consumer Price Index (CPI)

A measure of the average change in prices over time in a fixed market basket of goods and services.

Market Basket

A representative collection of goods and services used to compile the CPI.

Demand-Pull Inflation

Inflation caused by an increase in aggregate demand.

Cost-Push Inflation

Inflation caused by a decrease in aggregate supply (rising production costs).

Nominal Interest Rate

The stated rate; not adjusted for inflation.

Real Interest Rate

The rate adjusted for inflation; Real = Nominal – Inflation.

Fisher Equation

Real Interest Rate = Nominal Interest Rate – Inflation Rate.