Macroeconomics Unit 2 Vocabulary

Flashcards covering key vocabulary and concepts from Macroeconomics Unit 2, focusing on economic indicators, GDP, unemployment, inflation, and the business cycle.

Economic Indicators

Measures the health of the economy.

Circular Flow Model

Shows how households, businesses, and the government interact.

Gross Domestic Product (GDP)

The dollar value of all final goods and services produced within a country in one year.

Unemployment

Three types: frictional, structural, and cyclical.

Full Employment

No cyclical unemployment is present.

Real GDP

Adjusted for inflation.

Factor Payments

The payments households receive for selling factors of production; includes wages, rent, interest, and profit.

Transfer payments

Government payments made to businesses or households, such as subsidies or public assistance.

Three Economic Goals

Economic growth, low unemployment, and stable prices.

Expenditures Approach to GDP

Consumer spending, investment, government spending, and net exports.

Investment (in GDP terms)

Business spending on physical capital, like tools, machines, and factories.

Net Exports

Exports minus imports.

Income Approach to GDP

Wages plus rent plus interest plus profit.

Value-Added Approach to GDP

Sum of all the value added at each stage of the production process.

Intermediate Goods

Goods used in the production of final goods.

Non-Production Transactions

Buying or selling stocks and bonds.

Labor Force

People who are at least 16 years old and have a job or are actively looking for one, but does not include people in the military or in jail.

Labor Force Participation Rate

The number of people in the labor force divided by the working-age population times 100.

Unemployment Rate

Number of people actively looking for a job divided by the number of people in the labor force times 100.

Discouraged Workers

Out-of-work people who've given up looking for a job.

Part-Time Workers

People who are considered fully employed even if they're looking for another job.

Frictional Unemployment

People are between jobs.

Structural Unemployment

People don't have skills, and there's no job for them because the structure of the labor market has changed.

Cyclical Unemployment

Unemployment due to a recession.

Natural Rate of Unemployment

The amount of unemployment that exists when there's no cyclical unemployment.

Consumer Price Index (CPI)

Economists take a market basket of commonly purchased goods and services and track it over time to see what happened to prices.

Inflation

Prices are going up.

Deflation

Prices are going down.

Disinflation

Prices are still going up, but at a slower rate.

Substitution Bias

The CPI might continue to assume that people are buying beef, but in reality, they switched to buying chicken instead.

Who is hurt by unanticipated inflation?

Lenders that lend at a fixed interest rate and people with fixed incomes, like retirees.

Who benefits from unanticipated inflation?

Borrowers that borrow at a fixed interest rate.

GDP Deflator

Looks at the value of everything, the nominal GDP, and compares that to the GDP adjusted for inflation, the real GDP.

Trough

When the economy is at its lowest.

Expansion

Also called a recovery.

Peak

When the economy is at its height.

Recession

Also called a contraction.

Negative Output Gap (Recessionary Gap)

When there's all three types of unemployment and the actual GDP is less than the potential GDP.

Full Employment

Where the actual GDP is equal to potential GDP, so there's only frictional and structural unemployment and no cyclical unemployment.

Positive Output Gap (Inflationary Gap)

When there's still some unemployment, but it's really low frictional and structural unemployment, and the economy is overheating.