Unit 3 Economics: Macroeconomic Indicators, Circular Flow, Business Cycles, GDP, and Unemployment

Vocabulary flashcards covering the circular flow model, business cycle phases, GDP accounting components and exclusions, and labor force classifications and unemployment types from the Unit 3 Economics Study Guide.

Product Market

The market in the circular flow model where firms sell finished goods and services to households.

Factor Market

The market in the circular flow model where households supply factors of production (inputs such as labor, land, capital, and entrepreneurship) to firms.

Paycheck Flow Trace

The sequence where firms pay income (wages) to households in the factor market, households receive the income, and households spend that money in the product market to purchase goods and services from firms.

Peak

The highest point of economic expansion in the business cycle before economic activity slows down.

Contraction (Recession)

The phase of the business cycle where overall demand drops, resulting in decreasing GDP and increasing unemployment as businesses cut production and lay off workers.

Trough

The lowest point of economic activity in the business cycle before a recovery begins.

Expansion (Recovery)

The phase of the business cycle where economic activity, employment, and GDP grow.

Gross Domestic Product (GDP)

The market value of all final goods and services produced within a nation's domestic physical borders in a given period, calculated using the expenditure formula $GDP = C + I + G + NX$.

Intermediate Goods

Goods used as inputs in the production of other goods (such as internal hard-drives bought by Dell for PCs); excluded from GDP to prevent double-counting because their value is already bundled into the final product.

Transfer Payments

Government payments (such as Social Security or welfare) that are excluded from GDP calculations because no new good or service is produced in exchange.

Consumption ($C$)

Household spending on final goods and services, such as buying groceries at a supermarket, purchasing movie tickets, or getting a manicure.

Investment ($I$)

Spending by businesses on capital goods, equipment maintenance, business services, and the construction of new residential housing.

Government Purchases ($G$)

Expenditures by government entities on goods and services, such as paying public school teachers, purchasing naval fighter jets, or paving highways.

Net Exports ($NX$)

The value of domestically produced goods and services sold to foreign buyers (exports) minus the value of foreign-made goods and services purchased domestically (imports).

Labor Force

The total number of non-institutionalized individuals aged $16$ and older who are either currently employed or actively looking for work, defined by the formula $\text{Labor Force} = \text{Employed} + \text{Unemployed}$.

Employed ($E$)

A classification for individuals who worked for pay or profit for at least $1$ hour during the survey week, worked $15+$ unpaid hours in a family business, or have a job but are temporarily absent due to illness or vacation.

Unemployed ($U$)

A classification for individuals who are at least $16$ years old, currently without a job, and have actively searched for work within the past $4$ weeks.

Not in the Labor Force ($NLF$)

Individuals who do not have a job and are not actively seeking employment, including children under $16$, retirees, full-time students not seeking work, stay-at-home parents, and discouraged workers.

Discouraged Worker

An individual who looked for work for an extended period, found nothing, and has stopped actively searching; classified as Not in the Labor Force ($NLF$).

Frictional Unemployment

Unemployment that occurs when workers voluntarily transition between jobs, enter the labor force for the first time, or search for a better job fit.

Structural Unemployment

Unemployment caused by a fundamental mismatch between worker skills and available job openings, often driven by technological advancements, automation, or industrial shifts.

Cyclical Unemployment

Unemployment caused by an economic downturn or recession in the business cycle when reduced aggregate demand forces businesses to lay off workers.

Seasonal Unemployment

Unemployment tied to predictable seasonal variations in weather, holidays, or calendar demand, such as ski-resort workers without work in July or outdoor lifeguards in January.