Unit 2 key terms

Business cycle

The economy goes up and down like a rollercoaster. Sometimes people are making lots of stuff and have jobs, and sometimes not much is happening.

Recession

when the economy slows down, people buy less than before, buearn less and some people lose jobs.

Economic depression

A really bad and really long recession. a super big crash in the economy

Economic growth

When the economy makes more stuff than before, more jobs, more goods, more services

Gross domestic product(GDP)

the total value of all the stuff a country makes in a year, cars, clothes, haircuts, everything

Intermediate goods

things used to make something else( like steel to make cars)

Final goods

the finished product people actually buy

Expenditure approach

gdp= C+I+G+(X-M)

C= consumption- what households spend on things like food clothes services

I= investment- business spending on factories, machines, houses

G= government spending- roads,schools,defense

X= exports- what we sell to other countries

M= imports- what we buy from other countries

Income approach

another way to measure GDP but by adding up all the money people earn, wages ,rent ,profit

Nonmarket transactions

things that help the economy but dont show up in GDP, like mowing your own lawn or cooking at home

Government Purchases

when the government buys stuff, like roads, schools, or tanks

Disposable Personal income

the money you have left after paying taxes-your spending money

Labor force

all the people who either have jobs or are trying to get jobs

Unemployment rate

the percentage of people who want a job but cant find one.

Labor force participation rate

the percentage of people are working or trying to work out of the total adult population

frictional unemployment

when people are between jobs, like quitting one job and looking for another

structural unemployment

when workers’ skills dont match the job avaiable

cyclical unemployment

unemployment that happens when the economy is in a downturn (like in a recession)

Discouraged workers

people who stop looking for jobs because they feel they cant find one

Full employment

when almost everyone who wants a job has one (still some frictional/structural unemployment exists)

Natural rate of unemployment

The normal amount of unemployment in a healthy economy-never 0

Real output- also known as real gdp

the total amount of goods and services made, adjusted for inflation (so we measure the real stuff not just the highter prices

real gdp= nominal gdp/gdp deflator x 100

nominal gdp= (quantity in current yr x price in current year)

real gdp= (quantity sold in current yr x price in base year)

GDP deflator= nominal/real gdp x100

Consumer price index (CPI)

a measure of how prices change for everyday things people buy, like food,gas,clothes

Inflation

when prices go up over time ( purchasing power is less)

deflation

when prices go down over time (purchasing power is greater)

Real wages

Pay adjusted for inflation- how much your money can really buy

Nominal vs Real GDP

Nominal is measured with current prices real is measured with constant prices

nominal doesnt account for inflation while real removes inflation to show real growth