AP Macro Unit 2.1-2.4 Vocabulary Quiz

Gross Domestic Product

The total market value of all final goods and services produced annually within a country (eg. USA)

Final Goods

Products purchased for final use and not for resale.

Intermediate Goods

Products purchased for resale or further manufacturing; not counted in the spending method of calculating GDP because it would cause double counting.

Government Purchases

The expenditures of all governments in the economy for final goods and services.

Net Exports

Exports minus imports

Nominal (GDP, income, interest rate)

Unadjusted for inflation

Real (GDP, income, interest rate)

Adjusted for inflation

Price Index

The number which shows how the weighted average of selected goods changes throughout time.

Consumer Price Index (CPI)

The number which measures the prices of a fixed “market basket” of 300+ goods and services bought by a typical consumer.

Unemployment Rate

The percentage of the labor force unemployed at the time

Frictional Unemployment

Type of unemployment caused by temporary layoffs and workers voluntarily changing jobs.

Structural Unemployment

Unemployment of workers whose skills are not in demand, who lack skills to obtain employment or are unable to move places where jobs are available.

Cyclical Unemployment

A type of unemployment caused by insufficient total spending or insufficient aggregate demand.

Discouraged Workers

Employees who have left the labor force because they have been unable to find employment.

Inflation

A rise in the general level of prices in an economy.

Anticipated Inflation

Increases in the price level which occur at the expected rate.

Unanticipated Inflation

Increases in the price level which occur at a greater rate than expected.

Productivity

Output per worker; must increase for economic growth.

Deflation

Reduction in an economy’s price level; may occur during a recession.

Resource Market

Households sell and firms buy resources by households

Product Market

Products are sold by firms and bought by households.

Full Employment- Natural Rate of Unemployment

Unemployment rate when there is only frictional and structural unemployment but no cyclical unemployment (real output is equal to potential output).

Economic Growth

Outward shift of the PPC; increase in real output (GDP) or real GDP per capita; caused by increasing quantity or quality or resources, technology, and productivity.

Human Capital

Improvement in labor created by education and knowledge.

Expenditure Approach for Calculating GDP

Adds together Consumption + Investment + Government Spending + Exports - Imports (C+I+G+X-M).

Income Approach for Calculating GDP

Add together Wages + Profits + Interest + Rent (W+P+I+R).

Consumption

Spending by households on new goods and services, with the exception of purchases of new housing.

Government Spending

Spending by all new levels of government on final goods and services.

Net Exports (NX)

Spending on domestically produced goods by foreigners (exports) minus spending on foreign goods by domestic residents (imports).