AP Econ Unit 2 Vocab

Aggregate expenditures/spending

The total planned spending on goods and services in an economy (consumption + investment + government purchases + net exports).

Aggregate output

The total quantity of goods and services produced in an economy in a given period (usually measured as real GDP).

Aggregate price level

The overall average of prices for goods and services in an economy.

Base year

The reference year used to compare real values over time, with its price index set to 100.

Bond

A financial asset representing a loan made by a buyer to a borrower, typically with interest.

Chain-linking

A method of calculating real GDP by averaging growth rates between years to reduce distortion from price changes.

Consumer price index (CPI)

A measure of the average change in prices of a fixed basket of goods and services consumed by households.

Consumer spending / Personal consumption expenditures

Household spending on final goods and services.

Consumption of fixed capital (depreciation)

The decline in value of physical capital (like machines or buildings) as it wears out or becomes obsolete.

Cyclical unemployment

Unemployment caused by downturns in the business cycle (recessions).

Discouraged workers

People who want a job but have stopped looking because they believe none are available.

Disinflation

A slowdown in the rate of inflation (prices are still rising, but more slowly).

Disposable income

Household income after taxes, available for spending or saving.

Efficiency wages

Wages set above equilibrium to increase worker productivity and reduce turnover.

Employed

People 16+ who are currently working (full-time or part-time).

Expenditures approach

A method of calculating GDP by adding up all spending on final goods and services (C + I + G + NX).

Exports

Goods and services produced domestically and sold abroad.

Factor markets

Where resources (land, labor, capital, entrepreneurship) are bought and sold.

Final goods and services

Goods and services purchased by end users, not used as inputs for production.

Financial markets

Markets where financial assets like stocks and bonds are bought and sold.

Firm

An organization that produces goods or services for profit.

Frictional (job search) unemployment

Temporary unemployment as workers move between jobs or enter the labor force.

GDP deflator

A broad measure of price changes, calculated as (Nominal GDP ÷ Real GDP) × 100.

GDP per capita

GDP divided by the population; measures average economic output per person.

Government borrowing

Funds borrowed by the government, often through selling bonds, to finance spending.

Government purchases (of goods and services)

Government spending on goods and services that directly absorbs resources (not transfers).

Government transfers

Payments made by the government to individuals without receiving goods or services in return (e.g., Social Security).

Gross domestic product (GDP)

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

Gross national product (GNP)

The total value of goods and services produced by a country’s residents, regardless of location.

Gross private domestic investment (investment)

Spending on capital goods, inventories, and residential construction.

Household

A unit of people who share income and make consumption decisions.

Hyperinflation

Extremely rapid, uncontrolled rise in prices.

Imports

Goods and services produced abroad and purchased domestically.

Income approach

A method of calculating GDP by summing all incomes earned (wages, rents, interest, profits).

Inflation

A sustained increase in the general price level.

Intermediate goods and services

Goods and services used as inputs in producing final goods and services.

Inventory

Stocks of goods and raw materials businesses keep on hand to meet future demand.

Labor force

People 16+ who are employed or actively seeking work.

Labor force participation rate

The percentage of the working-age population that is in the labor force.

Marginally attached workers

People who are not in the labor force but want and are available for work, and have looked in the past year (but not recently).

Market basket

A fixed set of goods and services used to track changes in price levels over time.

Menu costs

Costs of changing listed prices (printing, updating systems, etc.).

National income (product accounts/national accounts)

Data that track spending, production, and income in the economy.

Natural rate of unemployment

The unemployment rate when the economy is at full employment (frictional + structural).

Net exports

Exports minus imports.

Nominal GDP

The value of output measured in current prices.

Nonmarket transaction

Economic activity not measured in GDP because no money changes hands (e.g., household work).

Okun’s law

The relationship between unemployment and GDP: a 1% rise in unemployment is associated with about a 2% fall in real GDP.

Price index

A measure of the average change in prices of a set of goods/services over time.

Producer price index (PPI)

An index measuring average price changes for goods/services purchased by producers.

Product markets

Where goods and services are bought and sold.

Real GDP

GDP adjusted for inflation, measured in base-year prices.

Real income

Income adjusted for changes in the price level (purchasing power of income).

Real wage

Wage adjusted for inflation (purchasing power of wages).

Recession

A decline in real GDP lasting at least two consecutive quarters.

Recovery

The phase of the business cycle where output and employment rise after a recession.

Seasonal unemployment

Unemployment due to predictable seasonal patterns in demand or labor supply.

Shoe leather costs

The increased costs of transactions caused by inflation (e.g., more frequent trips to the bank).

Stock

A share in the ownership of a company.

Structural unemployment

Unemployment caused by mismatches between workers’ skills and jobs available.

Transfer payments

Payments made by the government for which no good or service is received in return.

Underemployed

Workers employed part-time or below their skill level but who want full-time work.

Unemployed

People 16+ without a job but actively seeking work.

Unemployment rate

The percentage of the labor force that is unemployed.

Value added approach

A method of calculating GDP by summing the value added at each stage of production.