Unit 2 Vocabulary - Measuring the Economy

Gross Domestic Product (GDP)

Gross Domestic Product (GDP)

The total dollar value of all final goods and services produced within a nation’s borders in a given period of time.

Aggregate

A whole that is combined of many separate parts (“Everything put together”)

Real

Measured in unchanging, fixed prices (i.e., “adjusted for inflation”)

Nominal

Measured in current prices. (i.e., “not adjusted for inflation”)

Real GDP Per Capita

A measurement of the level of production in a country divided by the number of individuals in the country’s population.

Inflation

A steady increase in prices of goods and services over time.

Cost Push Inflation

Higher input costs cause businesses to increase prices of goods and services.

Demand Pull Inflation

Higher demand for products causes businesses to increase prices (law of supply).

Disinflation

A slowing in the rate of inflation. (i.e., “Prices are still rising, just not as rapidly as before”)

Deflation

A negative inflation rate. (i.e., “Prices are lower (in real terms) than they were before)

GDP Deflator

A measure of the level of prices of all new, domestically produced, final goods and services in an economy.

• Price index that measures price inflation of deflation, and is calculated using nominal GDP and real GDP.

Consumer Price Index (CPI)

A measure of the level of prices of a fixed market basket of goods and services commonly purchased by households.

Spending Multiplier

Represents the multiple by which GDP increases or decreases in response to an increase and decrease in government expenditures and/or investment.

The Business Cycle

A graphic representation of changes in real GDP over time.

Expansion/Recovery

A sustained increase in real GDP over time (positive GDP growth).

Peak

The highest level of rGDP in the business cycle.

Trough

The lowest level of rGDP in the business cycle.

Contraction

Negative rGDP growth.

Recession

A contraction that lasts between 6 months (2 consecutive quarters) to 2 years (8 consecutive quarters).

Depression

A contraction that lasts longer than 2 years (8 consecutive quarters).

Unemployment

Members of the labor force who are not working but are actively seeking work (within the past 4 weeks).

Labor Force

Adult civilians who are either employed or unemployed.

Underemployed Workers

People who are overqualified for their jobs, working part time when they wish to work full time, or working in a job that pays less than they are accustomed to earning.

Discouraged Workers

People who were unemployed so long that they decided to stop seeking work.