AP Macroeconomics Flashcards

Gross Domestic Product (GDP)

The total value of all goods and services produced in a country in a given time period.

Nominal GDP

GDP measured at current prices, without adjusting for inflation.

Real GDP

GDP adjusted for inflation, reflecting the actual value of goods and services.

GDP per Capita

GDP divided by the total population. It shows how much economic output is produced per person.

Unemployment Rate

The percentage of people in the labor force who are actively looking for a job but can’t find one.

Labor Force Participation Rate

The percentage of people who are either employed or actively looking for a job out of the working-age population.

Frictional Unemployment

Short-term unemployment when people are between jobs or just entering the job market.

Structural Unemployment

Unemployment caused by a mismatch between workers’ skills and the jobs available in the market.

Cyclical Unemployment

Unemployment caused by a downturn in the economy (recession) when businesses cut back on hiring.

Natural Rate of Unemployment (NRU)

The level of unemployment that exists when the economy is stable, combining frictional and structural unemployment.

Inflation

The rate at which the general level of prices for goods and services rises, leading to a decrease in purchasing power.

Consumer Price Index (CPI)

A measure that tracks changes in the prices of a typical basket of goods and services over time.

Deflation

A decrease in the general price level of goods and services, opposite of inflation.

Stagflation

A situation where the economy faces high inflation and high unemployment at the same time.

The Business Cycle

The natural rise and fall of economic activity over time. It has four stages:

Expansion: Economic growth, increasing employment, and rising incomes.

Peak: The economy is at its highest point before it starts to slow down.

Contraction (Recession): Economic decline, falling output, and rising unemployment.

Trough: The lowest point of the cycle, signaling the end of the recession and the start of a recovery.

Calculations:

Real GDP = Nominal GDP / (1 + Inflation Rate)

(Adjusts GDP for inflation)

Growth Rate = ((New Value - Old Value) / Old Value) * 100

(Shows the percentage change over a time period)

Inflation Rate = ((New CPI - Old CPI) / Old CPI) * 100

(Shows the percentage increase in prices)

Unemployment Rate = (Number of Unemployed / Labor Force) * 100

(Shows the percentage of the labor force that is unemployed)