AP MACRO FLASHCARDS
Write these flashcards by putting the section underlined and prior to the dash as the term word for word and then putting the part after the dash or not underlined as the definition word for word.
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) is the dollar value of all final goods and services produced within a country in one year.
% Change in GDP = Year 2 - Year 1 / Year 1 X 100
GDP Per Capita (Per person) - GDP divided by the population. It identifies on average how many products each person makes.
Economic System- Capitalism promotes innovation and provides incentives to improve productivity. (Explains why 1 country has higher GDP than another)
Rule of Law - Countries with solid institutions and political stability have historically had more economic growth. (Explains why 1 country has higher GDP than another)
Capital Stock- Countries that have more machines and tools are more productive. (Explains why 1 country has higher GDP than another)
Human Capital- Countries that have better education and training are more productive. (Explains why 1 country has higher GDP than another)
Natural Resources - In general, countries that have access to more natural resources are more productive. (Explains why 1 country has higher GDP than another)
What is NOT included in GDP - Intermediate Goods, Non Production Transactions, and Nonmarket and Illegal Activities
Expenditures Approach - Add up all the spending on final goods and services produced in a given year
Income Approach- Add up all the income earned from selling all final goods and services produced in a given year. For the Income Aproach - ADD FACTOR PAYMENTS
Value-added Approach - Add up the dollar value added at each stage of the production process.
Consumer Price Index (CPI) - Price of market basket / Price of market basket in base year X 100
Inflation rate - New CPI - Old CPI / Old CPI X 100
What GDP doesn’t measure - PIES → Population, Inequalities, Environment, Shadow Market
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.
Unemployment rate = (Number of unemployed / Number in Labor Force) X 100)
Frictional unemployment- Temporary unemployment or being between jobs. Individuals are qualified workers with transferable skills.
Structural Unemployment- Changes in the labor force make some skills obsolete. These workers DO NOT have transferable skills and these jobs will never come back. Workers must learn new skills to get a job.
Cyclical Unemployment- Unemployment caused by business cycles (recessionary). As demand for goods and services falls, demand for labor falls and workers are laid off. This is sometimes called “demand deficient unemployment.”
Natural Rate of Unemployment (NRU)- Frictional plus structural unemployment. The amount of unemployment that exists when the economy is healthy and growing.
Full Employment Output (Y)- The Real GDP created when there is no cyclical unemployment.
People who are hurt by Inflation - Lenders, Preople with fixed incomes - retirees, and Savers
People who are helped by Inflation - Borrowers and buisnesses where the price of the product increases faster than the price of resources.
Nominal Wage - Wage measured by dollars rather than purchasing power.
Real Wage - Wage adjusted for inflation.
Costs of inflation - Menu Costs, Shoe Leather Costs, and Unit of Account costs.
Menu Costs – Costs money to change listed prices.
Shoe Leather Costs – The costs of transactions increase.
Unit of Account Costs – Costs that arise from the unpredictable value of money.
Hyperinflation - occurs when a country experiences very high and accelerating inflation, leading to a rapid erosion of the real value of its currency.
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.