AP macro unit 2 vocab

 Product Market

markets where goods and services are bought and sold

 Consumer Spending

household spending on goods and services

 Factor Market

markets where resources, especially capital and labor, are bought and sold

 Government Spending

total expenditures on goods and services by federal, state, and local goverments

 Tax Revenue

the total amount of funds the government receives from taxes

 Disposable Income

equal to income – taxes, this is the total amount of household income available to spend on consumption.

 Government Transfers

payments that the government makes to individuals without expecting a good or service in return

 Private Savings

equal to disposable income – consumer spending, this is a household’s disposable income that is not spent on consumption

 Financial Markets

channel private savings into investment spending and government borrowing

 Government Borrowing

the amount of funds borrowed by the government in the financial market

 Investment Spending

spending by firms on new productive physical capital, such as machinery and structures, and changes in inventories

 Inventories

stocks of goods and raw materials held to facilitate business operations

 Exports

goods and services sold to other countries

 Imports

goods and services purchased from other countries

 Gross Domestic Product (GDP)

the total value of all final goods and services produced in the economy during a given year

 Intermediate Goods

goods and services bought from one firm by another firm to be used as inputs into the production of goods and services

 Final Goods

goods and services sold to the final, or end, user

 Employed

people currently holding a job in the economy, either part-time or full-time

 Unemployed

people who are actively looking for work but aren’t currently employed

 Labor Force

equal to the sum of the employed and the unemployed

 Discouraged Workers

nonworking people who are capable of working but have given up looking for a job due to the state of the job market

 Natural Rate of Unemployment

the unemployment rate that arises from the effects of frictional plus structural unemployment

 Inflation

a rising overall price level

 Deflation

a falling overall price level

 Disinflation

the process of bringing the inflation rate down

 Real Wage

the wage rate divided by the price level to adjust for the effects of inflation or deflation

 Real Income

income divided by the price level to adjust for the effects of inflation or deflation

 Price Level

the measure of overall prices in the economy

 Consumer Price Index

measures the cost of the market basket of the typical urban American family

 Nominal Interest Rate

the interest rate actually paid for a loan

 Real Interest Rate

the nominal interest rate minus the rate of inflation

 GDP Deflator

measuring and adjusting the nominal GDP for changes in the price level over time

 GDP per capita

GDP divided by the total population; it is equivalent to the average GDP per person

 Economic Growth

an increase in the maximum amount of goods and services that an economy can produce

 Full-Employment Output

the level of real GDP the economy can produce when all resources are fully employed

 Potential Output

what an economy can produce when operating at maximum sustainable employment (that is, the natural rate of unemployment)

 Output Gap

the difference between actual output and potential output