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AP Macroecoonomics
Gross Domestic Product (GDP)
the dollar value of all final goods and services produced within a country in one year
expenditure approach
add up all the spending on final goods and services produced in a given year
GDP =
C + I + G + (X-M)
income approach
add up al the income earned from selling all final goods and services produced in a given year
value added approach
add up the dollar value at each stage of the production process
the circular flow model shows how households, businesses, and the __________ interact
government
Business sell ____________________ to households in the __________ market
goods and services, product
households sell ______________ to business in the ___________ market
resources, resource
public goods and services are provided by the _______________
government
three types of transactions that are not included in GDP
intermediate goods, non production transactions, nonmarket and illegal activities
private sector
part of the economy that is run by individuals and businesses
public sector
the part of an economy that is controlled by the government.
factor payments
payment for the factors of production, namely rent, wages, interest, and profit
transfer payments
When the government redistributes income (ex: welfare, social security)
subsidies
A government payment that supports a business or market
percent change equation
year 2 - year 1 / year 1 x 100
intermediate goods
goods inside the finals goods don't count (ex: price of finished car, not the stock, radio, or cars)
nonproduction transactions
Financial Transactions (nothing produced)
Ex: Stocks, bonds, Real estate
Used Goods
Ex: Old cars, used clothes
Nonmarket and illegal activities
things made at home - household production
ex: unpaid work, black market, drugs
labor income
wages earned from performing work
Rental income
income earned from property owned by individuals
interest income
interest earned from loaning money to businesses
profit
money business have after paying all their costs
frictional unemployment
Temporary unemployment or being between jobs. Individuals are qualified workers with transferable skills. (ex: high school or college graduates looking for a job)
structural unemployment
changes in the workforce make some skills obsolete ex: milkman, VCR repairman
cyclical unemployment
unemployment caused by recession (ex: steelworkers laid off during recession)
natural rate of unemployment
the unemployment rate that arises from the effects of frictional plus structural unemployment.
explain why "full employment" does not mean 0% unemployment
Fric & struc will always exist (4%-5% no cyclical)
Consumer Price Index (CPI)
a measure of the overall cost of the goods and services bought by a typical consumer
CPI equation
100 x (cost of basket in current year/cost of basket in base year)
GDP deflator
measures change in prices of all goods produced
base year = 100
GDP deflator equation
Nominal GDP/Real GDP x 100
Who is hurt by unexpected inflation?
Lenders, savers, people living off fixed income, people providing a service for a fixed rate.
Who is helped by unexpected inflation?
People who borrowed at a fixed interest rate and renters on a fixed lease, a business where the price of the product increases faster than the price of resources
Nominal GDP
wage measured by dollars rather than purchasing power
Real GDP
wage adjusted for inflation
deflation
decrease in general prices or a negative inflation rate
disinflation
prices increasing at slower rates
discouraged workers
some people are no longer looking for a job because they have given up
labor force participation rate
percent of population in labor force
underemployed workers
someone who wants more hours but can't get them and is still considered employed
race/age inequalities
the overall unemployment rate doesn't show disparity for minorities and teenagers
false
T or F
On the circular flow model, businesses seel the factors of production to households
true
T or F
Intermediate goods are used in the production process to produce final goods
false ( G & S) included
T or F
Final goods are included in GDP but services are not counted
F (nonmarket trans)
T or F
Investment spending is spending on financial assets like stocks and bonds
F (nonmarket trans)
T or F
Welfare checks and subsidies to businesses are examples of transfer payments
true
T or F
transfer payments are not counted in the calculation of GDP
false (exports - imports)
T or F
the equation for net exports is imports minus exports
True (for rent)
T or F
new housing construction is considered investment and is counted in GDP
False (borders)
T or F
Canada's GDP includes goods produced in other countries by Canadian companies
they aren't willing or able to find a job
why are discouraged workers not included in the unemployment rate?
it stays the same - underemployed workers are still employed
what happens to the unemployment rate when full-time workers involuntarily become part-time workers?
Menu Costs
costs money to change listed prices, businesses must update menus, signs, etc
Shoe Leather Cost
The cost of transactions increase, people reduce their real money holdings so they . must spend time and effort making additional trips to the bank
Unit of Account costs
money doesn't reliably measure the value of goods/ services
nonmarket transactions
many goods and services provide value but don't count in GDP
Note 
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