AP Econ Unit 2 Vocab

Jonathan Wang

National Income and Product Accounts

An accounting of consumer spending, sales of producers, business investment spending, and other flows of money between different sectors of the economy; also referred to as national accounts. Calculated by the Bureau of Economic Analysis.

National Accounts

An accounting of consumer spending, sales of producers, business investment spending, and other flows of money between different sectors of the economy; also referred to as national income and product accounts. Calculated by the Bureau of Economic Analysis.

Household

A person or group of people who share income

Firm

An organization that produces goods and services for sale

Product Markets

Where goods and services are bought and sold

Factor Markets

Where resources, especially capital and labor, are bought and sold

Consumer Spending

Household spending on goods and services from domestic and foreign firms

Stock

A share in the ownership of a company held by a shareholder

Bond

Loan in the form of an IOU that pays interest

Government Transfers

Payment by the government to individuals for which no good or service is provided in return

Disposable Income

Income plus government transfers minus taxes; the total amount of household income available to spend on consumption and saving

Private Savings

Disposable income minus consumer spending; disposable income that is not spent on consumption but rather goes into financial markets

Financial Markets

The banking, stock, and bond markets, which channel private savings and foreign lending into investment spending, government borrowing, and foreign borrowing

Government Borrowing

The amount of funds borrowed by the government in financial markets to buy goods and services

Government Purchases of Goods and Services

Total purchases by federal, state, and local governments on goods and services

Exports

Goods and services sold to other countries

Imports

Goods and services purchased from other countries

Inventories

Stocks of goods and raw materials held to satisfy future sales

Investment Spending

Spending on productive physical capital, such as machinery and construction, and on changes to inventories

Final Goods and Services

Goods and services sold to the final, or end, user

Intermediate Goods and Services

Goods and services, bought from one firm by another firm, that are inputs for production of final goods and services

Gross Domestic Product (GDP)

The total value of all final goods and services produced in the economy during a given period, usually a year

Aggregate Spending

The total spending on domestically produced final goods and services; the sum of consumer spending (C), investment spending (I), government purchase of goods and services (G), and exports minus imports (X - IM)

Value Added

The value of a producer’s sales minus the value of input purchases

Net Exports

The difference between the value of exports and the value of imports. A positive value indicates that a country is a net exporter of goods and services; a negative value indicates that a country is a net importer of goods and services.

Aggregate Output

The economy’s total production of final goods and services for a given time period, usually a year. Real GDP is the numerical measure of aggregate output typically used by economists.

Real GDP

The total value of all final goods and services produced in the economy in a given year, calculated using the prices of a selected base year

Nominal GDP

The value of all final goods and services produced in the economy during a given year, calculated using the prices current in the year in which the output is produced

Chain-Linking

The method of calculating changes in real GDP using the average between the growth rate calculated using an early base year and the growth rate calculated using a late base year

GDP Per Capita

GDP divided by the size of the population; equivalent to the average GDP per person

Employed

People currently holding a job in the economy, either full time or part time

Unemployed

People who are actively looking for work but are not currently employed

Labor Force

The number of people who are either actively employed for pay or unemployed and actively looking for work; the sum of employment and unemployment

Labor Force Participation Rate

The percentage of of the population age 16 or older that is in the labor force

Unemployment Rate

The percentage of the total number of people in the labor force who are unemployed, calculated as unemployment / (unemployment + employment)

Discouraged Worker

Non-working people who are capable of working but have given up looking for a job due to the state of the job market

Marginally Attached Workers

Non-working individuals who say they would like a job and have looked for work in the recent past but are not currently looking for work

Underemployed

People who work part time because they cannot find full-time jobs

Job Search

When workers spend time looking for employment

Frictional Unemployment

Unemployment due to time workers spend in job search

Structural Unemployment

Unemployment that results when there are more people seeking jobs in a labor market than there are jobs available at the current wage rate

Efficiency Wages

Wages that employers set above the equilibrium wage rate as an incentive for workers to deliver better performance

Natural Rate of Unemployment

The unemployment rate that arises from the effects of frictional plus structural unemployment

Cyclical Unemployment

Unemployment resulting from the business cycle; equivalently, the difference between the actual rate of unemployment and the natural rate of unemployment

Real Wage

The wage rate divided by the price level

Real Income

Income divided by the price level

Inflation Rate

The annual percent change in a price index—typically the consumer price index. The inflation rate is positive when the aggregate price level is rising (inflation) and negative when the aggregate price level is falling (deflation).

Shoe-Leather Costs

The increased costs of transactions caused by inflation

Menu Costs

The real cost of changing a listed price

Unit-of-Account Costs

Costs arising from the way inflation makes money a less reliable unit of measurement

Nominal Interest Rate

The interest rate actually paid for a loan, not adjusted for inflation

Real Interest Rate

The nominal interest rate minus the inflation rate

Disinflation

The process of bringing down inflation that has become embedded in expectations

Aggregate Price Level

A measure of the overall level of prices in the economy

Market Basket

A hypothetical consumption bundle of consumer purchases of goods and services, used to measure changes in overall price level

Price Index

A measure of the cost of purchasing a given market basket in a given year, where that cost is normalized so that it is equal to 100 in the selected base year; a measure of overall price level

Consumer Price Index (CPI)

A measure of the cost of a market basket intended to represent the consumption of a typical urban American family of four. It is the most commonly used measure of prices in the United States.

Producer Price Index (PPI)

A measure of the cost of a typical basket of goods and services purchased by producers. Because these commodity prices respond quickly to changes in demand, it is often regarded as a leading indicator of changes in the inflation rate.

GDP Deflator

A price measure for a given year that is equal to 100 times the ratio of nominal GDP to real GDP in that year