Unit 2 Vocabulary - Measuring the Economy

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24 Terms

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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.

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Aggregate

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

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Real

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

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Nominal

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

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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.

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Inflation

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

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Cost Push Inflation

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

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Demand Pull Inflation

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

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Disinflation

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

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Deflation

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

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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.

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Consumer Price Index (CPI)

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

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Spending Multiplier

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

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The Business Cycle

A graphic representation of changes in real GDP over time.

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Expansion/Recovery

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

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Peak

The highest level of rGDP in the business cycle.

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Trough

The lowest level of rGDP in the business cycle.

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Contraction

Negative rGDP growth.

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Recession

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

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Depression

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

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Unemployment

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

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Labor Force

Adult civilians who are either employed or unemployed.

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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.

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Discouraged Workers

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