Ap Macroeconomics Unit 2: Measuring The Economy

GDP

The total market value for final goods and services produced inside the USA in one year no matter who owns the company.

Final Goods

The end product after all processing.

Intermediate Goods

Goods and services purchased for further processing and/or manufacturing.

Non Production Transactions

Income earned, but not because you productively used your resources.

Calculating GDP

C+Ig+G+Xn

C

Personal consumption expendatures-household spending.

Ig

Gross private domestic investment.

G

Government purchases.

Xn

Exports-imports.

Income Formula

W+P+i+R+Inbt+Dep

W

Compensation of employees-wages/comissions.

R

Rent.

i

Interest payments.

P

Profits.

Inbt

Indirect business sales tax.

Dep

Depreciation for a good.

Gross

Total investment in a year.

Net

Gross private domestic investment-depreciation.

NDP

An estimate of what is sustainable to produce when capitol equipment wasn’t.

Nominal GDP

Not adjusted for inflation or deflation.

RGDP Per Capita

RGDP per person.

Percent Change

final-inital/initial x 100

Inflation/Deflation

A sustained increase/decrease in average or general level of prices.

Disinflation

Inflation that is lower than the previous year.

CPI

A weighted market basket of 300 goods and services purchased by consumers.

Peak

Full employment and output, a temporary maximum, which inflation and unemployment may be below the natural rate.

Contraction

Decrease in output, income and employment, widespread contraction of business and consumer spending.

Trough

Recession bottoms out.

Expansion/Recovery

Increase in output, income and employment. Increases in consumer and business spending. Typically, a bit of inflation.

Frictional Unemployment

You quit/are fired and are searching for work.

Structural Unemployment

The job is lost forever due to structural changes in the economy. Your skill set is not employable, replaced by technology or outsourced.

Cyclical Unemployment

You get laid off due to lower levels of spending.

NRU

A natural rate of unemployment even when the economy is doing well.

Potential Output

The real level of output (RGDP) when the economy is fully employed.

Flaws In The Unemployment Rate

People that are part time, and that are discouraged.

Graphing Demand Pull Inflation

When spending outpaces the ability to produce. Too much money chasing too few goods.

Acceptable Inflation

2-3%

Inflation Where Action Is Taken

5% or more.

Hyperinflation

50% or more.

Negative Supply Shock

When the costs of a major resource increase dramatically.

Graphing Cost Push Inflation

When the costs of major resources push the price level up.