AP Macro Unit 2 Vocab

Macroeconomics

the study of the large economy as a whole. It is the study of the big picture

Gross Domestic Product (GDP)

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

GDP Per Capita

the dollar value of all final goods and services produced within a country's borders in one year divided by the population

Expenditures Approach

Method for calculating GDP by adding up all the spending on final goods and services produced in a given year

Income Approach

Method for calculating GDP by adding up all the income that resulted from selling all final goods and services produced in a given year

Consumer Spending

Purchases of final goods by private individuals

Investment Spending

Business spending on tools and equipment used to increase productivity

Government Spending

Money spent by the government on goods and services used to run the government.

Net Exports

Exports (X) - Imports (M)

Nominal GDP

GDP measured in current prices. It does not account for inflation from year to year.

Real GDP

GDP expressed in constant, or unchanging, dollars.

Unemployment

Workers that are actively looking for a job but aren't working

The Unemployment Rate

The percent of people in the labor force who want a job but are not working.

Frictional unemployment

Qualified workers with transferable skills that are temporarily unemployed

Seasonal Unemployment

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

Structural Unemployment

Changes in the labor force make some skills obsolete.

Technological Unemployment

Type of structural unemployment where automation and machinery replace workers

Cyclical Unemployment

Unemployment caused from a recession

Natural Rate of Unemployment (NRU)

Frictional plus structural unemployment. The amount of employment that exists when the economy is healthy and growing.

Full Employment Output (Y)

The Real GDP created when there is no cyclical unemployment

Discouraged Workers

Unemployed workers who have given up looking for a job

Labor Force Participation Rate

Percent of population in the labor force.

If people leave labor force the unemployment rate falls

Underemployed Workers

Someone who wants more hours but can't get them is still considered employed.

Inflation

a sudden or continuous rise in the general level of prices that reduces the "purchasing power" of money

Deflation

A decrease in general prices or a negative inflation rate.

Disinflation

When prices increase but at a slower rate

Nominal Wage

Wage measured by dollars rather than purchasing power

Real Wage

Wage adjusted for inflation

The Inflation Rate

The percent change in prices from year to year

Price Indices

Index numbers assigned to each year that show how prices have changed relative to a specific base year.

Consumer Price Index (CPI)

an index of the variation in prices paid by typical consumers for retail goods and other items.

GDP deflator

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

hyperinflation

monetary inflation occurring at a very high rate.

Velocity of Money

Average number of times a dollar is spent and re-spent in a year.

Demand-Pull Inflation

A type of inflation characterized by "Too many dollars chasing too few goods"

An overheated economy with excessive spending but same amount of goods.

Cost-Push Inflation

inflation caused by an increase in prices of inputs like labour, raw material, etc. The increased price of the factors of production leads to a decreased supply of these goods.

Real Interest Rates

The percentage increase in purchasing power that a borrower pays. (adjusted for inflation)

Real = nominal interest rate - expected inflation

Nominal Interest Rates

the percentage increase in money that the borrower pays not adjusting for inflation.

Nominal = Real interest rate + expected inflation