AP Macroeconomic Unit 2: Terms

These terms are derived from Mr. Parmar study guide assignment

Gross Domestic Product (GDP)

The total value of all final goods and services produced within a country's borders in a specific time period, used as a broad measure of economic activity.

Nominal GDP

measures a country's economic output without adjustment for inflation, reflecting current market prices.

Real GDP

measures a country's economic output adjusted for inflation, reflecting the value of goods and services at constant prices.

GDP Deflator 

an index that measures the change in prices for all of the goods and services produced in an economy, allowing for the comparison of GDP over time.

Intermediate Goods

are products used to produce final goods or services, not included in GDP calculations to avoid double counting.

Final Goods

products that have completed the production process and are ready for sale to consumers.

Investment Spending 

refers to expenditures on goods and services that will be used for future production. This includes purchases such as machinery and buildings.

Labor Force

the total number of people available for work, including both the employed and unemployed, who are actively seeking employment.

Unemployment Rate

the percentage of the labor force that is unemployed and actively seeking work.

Frictional Unemployment

refers to the temporary unemployment that occurs when individuals are between jobs or are entering the labor market for the first time.

Structural Unemployment

occurs when there are fundamental shifts in the economy that create a mismatch between the skills of the labor force and the jobs available.

Cyclical Unemployment 

is the unemployment associated with the cyclical trends in the economy, often rising during economic downturns and falling during periods of economic growth.

Natural Rate of Unemployment (NRU)

the level of unemployment consistent with a stable economy, where all unemployment is frictional and structural, but not cyclical.

Discouraged Worker 

A person who is not actively seeking employment because they have lost hope of finding work, often due to prolonged unemployment.

Inflation

the rate at which the general level of prices for goods and services rises, eroding purchasing power.

Deflation

the decline in the general price level of goods and services, which can increase the real value of money but may lead to reduced economic activity.

Consumer Price Index (CPI)

a measure that examines the weighted average of prices of a basket of consumer goods and services, including transportation, food, and medical care, and is used to assess price changes associated with the cost of living.

Market Basket

a collection of goods and services used to measure inflation and cost of living.

Nominal Income

The income measured in current dollars, without adjusting for inflation. It reflects the actual amount of money received by an individual or entity.

Real Income

The income of an individual or entity adjusted for inflation, reflecting the purchasing power of money over time.

Nominal Income Rate

refers to the percentage increase in nominal income over a specific period, not accounting for inflation. It indicates how much income has grown in actual dollars

Real Interest Rate

The rate of interest an investor receives, adjusted for inflation, which reflects the real purchasing power of money over time.

Inflation Rate

The percentage increase in the price level of goods and services over a specific period, indicating how much overall prices have risen.

Households

The rate at which the general price level of goods and services rises, eroding purchasing power over time, typically expressed as an annual percentage.

Firms

Business entities engaged in commercial activities, producing goods or services to earn a profit. They can range from small startups to large corporations.

Factor Market

A marketplace where factors of production, such as labor and capital, are bought and sold. It is essential for the allocation of resources in an economy.

Product Market

Leakages

Injections

are additions to the economy's circular flow, including government spending, investments, and exports, that boost overall economic activity.

(4) Components of GDP

Consumption (C), Investment (I), Government Spending (G), and Net Exports (NX)