Ap macro unit 2

National income accounting

economists collect statistics on production, income, investment, and savings

Gross Domestic Product (GDP)

dollar value of all final goods and services produced within a country’s borders in one year

% change in GDP

year 2-year 1/ year 1 *100

Intermediate goods

goods inside the final goods don’t count

Nonproduction transactions

financial transactions (nothing produced)

Non market and illegal activities

things made at home- household production

Expenditures approach

add up all the spending on final goods and services produced in a given year

Income approach

add up all the income that results from selling all final goods and services produced in a given year

Durable goods

washing machines, refrigerators

Non-durable goods

food, clothes

Services

dental work, repairs

Inventories

goods produced and held in storage in anticipation of later sales, counted in the year they are produce

Inflation

rising general level of prices

Nominal gdp

gdp measure in current prices, doesnt account for inflation from year to year

Real GDP

GDP expressed in constant, or unchanging dollars. Adjusts for inflation

Unemployment

workers that are actively looking for a job but aren’t working

Unemployment rate

percentage of people in the labor force who want a job but are not working

Frictional unemployment

temporary unemployment or being between jobs

Seasonal Unemployment

specific type of frictional unemployment which is due to time of year and nature of the job

Structural unemployment

changes in the labor force makes some skills obsolete

Technological unemployment

type of structural unemployment where automation and machinery replace workers

Cyclical Unemployment

unemployment caused by a recession

Natural Rate of Unemployment (NRU)

frictional plus structural unemployment, amount of unemployment that exists when the economy is healthy and growing

Full employment output (Y)

Real GDP created when there is no cyclical unemployment

Discouraged workers

some people are no longer looking for a job because they have given up

Underemployed workers

someone who wants more hours but cant get them is still considered employed

Deflation

decrease in general prices or a negative inflation rate

Disinflation

prices increasing at slower rates

Nominal wage

wage measured by dollars rather than purchasing power

Real wage

wage adjusted for inflation

Consumer Price Index (CPI)

price of market basket/price of market basket in base year *100

Substitution bias

as prices increase for the fixed market basket, consumers buy less of these products and more substitutes that may not be part of the market basket

Hyperinflation

governments that keep printing money to pay debts end up with

Veloctiy of money

average times a dollar is spent in a year

Quantity Theory of Money Equation

MV = PY