Unit 2 Macroeconomics

Macroeconomics: The study of the large economy as a whole, focusing on aggregate variables like GDP, unemployment, and inflation.

Private Sector: Part of the economy that is run by individuals and businesses.

Public Sector: Part of the economy that is controlled by the government.

Factor Payments: Payment for the factors of production, namely rent, wages, interest, and profit.

Transfer Payments: When the government redistributes income (ex: welfare, social security).

Subsidies: Government payments to businesses.

Gross Domestic Product (GDP): The dollar value of all final goods and services produced within a country in one year.

National Income Accounting: The methods economists use to collect statistics on production, income, investment, and savings to measure economic growth.

GDP per Capita: GDP divided by the population; it identifies on average how many products each person makes and is a better measure of a nation's standard of living.

Intermediate Goods: Goods inside the final goods don't count in GDP. For example, the price of a finished car, not the stock radio or tires.

Expenditures Approach: A way of calculating GDP that adds up all the spending on final goods and services produced in a given year.

Income Approach: A way of calculating GDP that adds up all the income earned from selling all final goods and services produced in a given year.

Value-added Approach: A way of calculating GDP that adds up the dollar value added at each stage of the production process.

Consumer Spending (C): Purchases of final goods and services by individuals.

Business Investment (I): Businesses spending on tools and equipment.

Government Spending (G): Payments made by the government for goods and services.

Net Exports (X-M): Exports minus imports.

Durable Goods: Goods that have a long lifespan (ex: washing machines, refrigerators, cars).

Non-durable Goods: Goods that have a short lifespan (ex: food, clothes, toilet paper).

Inventories: Goods produced and held in storage in anticipation of later sales.

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

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

Labor Force: Individuals who are at least 16 years old, able and willing to work, not institutionalized, and not in the military, in school full time, or retired.

Structural Unemployment: Changes in the labor force that make some skills obsolete.

Technological Unemployment: A type of structural unemployment where automation and machinery replace workers.

Natural Rate of Unemployment (NRU): Frictional plus structural unemployment, which exists when the economy is healthy and growing.

Full Employment Output (Y): The Real GDP created when there is no cyclical unemployment.

Discouraged Workers: Some people who are no longer looking for a job because they have given up.

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

Inflation: Rising general level of prices and it reduces the "purchasing power" of money.

Deflation: Decrease in general prices or a negative inflation rate.

Disinflation: Prices increasing at slower rates.

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): The most commonly used measurement of inflation for consumers.

Nominal Wage: Wage measured by dollars rather than purchasing power.

Real Wage: Wage adjusted for inflation.

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; real GDP adjusts for inflation.

GDP Deflator: A measure of the price level calculated as the ratio of nominal GDP to real GDP times 100.

Business Cycle: The national economy goes up and down like a roller coaster over time.

Recession (Contraction): A six-month period of decline in Real GDP; if really bad, then depression.

Recovery (Expansion): A period of increasing economic activity in the business cycle.

Peak: The highest point of economic activity in the business cycle.

Trough: The lowest point of economic activity in the business cycle.