Understanding GDP, Inflation, and Unemployment

A set of flashcards designed to help students understand key terms and concepts related to GDP, inflation, and unemployment.

GDP (Gross Domestic Product)

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

Nominal GDP

The total economic output without adjusting for inflation.

Real GDP

The total economic output adjusted for inflation, reflecting the true value of goods and services at constant prices.

Inflation

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

Consumer Price Index (CPI)

A measure that examines the average change over time in the prices paid by consumers for a market basket of goods and services.

Unemployment Rate

The percentage of the labor force that is jobless and actively seeking employment.

Labor Force Participation Rate (LFPR)

The proportion of the adult population that is either employed or actively seeking employment.

Underground Economy

Economic activity that is neither reported to the government nor taxed, including illegal goods and services.

Market Basket

A representative collection of goods and services used to measure price changes in the CPI.

Cost of Living Adjustment (COLA)

An increase in income intended to offset the effects of inflation.

Real Income

The income of individuals or nations after adjusting for inflation, reflecting purchasing power.

Nominal Interest Rate

The interest rate stated on a loan or saving account that does not account for inflation.

Real Interest Rate

The interest rate adjusted for inflation, reflecting the true cost of borrowing.

Base Year

A year used as a benchmark to compare changes in economic data.

Substitution Bias

The tendency of consumers to change their purchasing habits between similar products due to relative price changes.

Deflation

A decrease in the general price level of goods and services.

Home Production

Goods and services produced within the home that are not sold in the market and therefore not included in GDP.

Nominal GDP vs. Real GDP

Nominal GDP considers current prices without inflation adjustment, while Real GDP is adjusted for inflation.

Positive and Negative Externalities

Positive externalities are beneficial effects on third parties, while negative externalities cause harmful effects.