Chapter 24-25 Terms AP Macro

Question 1

business cycle

Answer 1

recurring increases and decreases in the level of economic activity over periods of years; consist of peak, recession, trough, and expansion phases

Question 2

recession

Answer 2

a period of declining real GDP, accompanied by lower real income and higher unemployment

Question 3

real GDP (gross domestic product)

Answer 3

adjusted for inflation; GDP in a year divided by the GDP price index for that year, then index expressed as a decimal

Question 4

nominal GDP

Answer 4

GDP measured in terms of the price level at the time of measurement; GDP not adjusted for inflation

Question 5

unemployment

Answer 5

the failure to use all available economic resources to produce desired goods and services; the failure of the economy to fully employ its labor force

Question 6

inflation

Answer 6

a rise in the general level of prices in an economy; an increase in an economy’s price level

Question 7

modern economic growth

Answer 7

the historically recent phenomenon in which nations for the first time have experienced sustained increases in real GDP per capita.

Question 8

saving

Answer 8

disposable income not spent for consumer goods; equal to disposable income minus personal consumption expenditures; saving is a flow. compare with savings

Question 9

investment

Answer 9

in economics, spending for the production and accumulation of capital and additions to inventories

Question 10

financial investment

Answer 10

the purchase of a financial asset (stock, bond) or real asset (house, land) or the building of such assets in the expectation of financial gain

Question 11

economic investment

Answer 11

(see investment) in economics, spending for the production and accumulation of capital and additions to inventories

Question 12

shock

Answer 12

sudden, unexpected changes in demand (or aggregate demand) or supply (aggregate supply)

Question 13

demand shock

Answer 13

sudden, unexpected change in demand

Question 14

supply shock

Answer 14

sudden, unexpected change in supply

Question 15

inventory

Answer 15

goods that have been produced but remain unsold

Question 16

inflexible prices (“sticky”)

Answer 16

product prices that remain in place (at least for awhile) even through supply or demand has changed; stuck or sticky prices

Question 17

flexible prices

Answer 17

product prices are freely moved upward or downward when product demand or supply changes

Question 18

national income accounting

Answer 18

the techniques used to measure the overall production of a country’s economy as well as other related variables

Question 19

gross domestic product (GDP)

Answer 19

the total market value of all final goods and final services produced annually within the boundaries of a nation `

Question 20

intermediate goods

Answer 20

products that are purchased for resale or further processing or manufacturing

Question 21

final goods

Answer 21

goods that have been purchases for final use (rather than for resale or processing or manufacturing)

Question 22

multiple counting

Answer 22

wrongly including the value of intermediate goods in the GDP; counting the same good or service more than once

Question 23

value added

Answer 23

value of a product sold by a firm less the value of the products (materials) purchased and used by the firm to produce that product

Question 24

expenditures approach

Answer 24

the method that adds all expenditures made for final goods and final services to measure the GDP

Question 25

income approach

Answer 25

the method that adds all the income generated by the production of final goods and final services to measure the GDP

Question 26

personal consumption expenditures (C)

Answer 26

the expenditures of households for both durable and nondurable consumer goods

Question 27

durable goods

Answer 27

a consumer good with an expected life (use) of 3 years or more

Question 28

nondurable goods

Answer 28

a consumer good with an expected life (use) of less than 3 years

Question 29

service

Answer 29

an (intangible) act or use for which a consumer, firm, or government is willing to pay

Question 30

gross private domestic investment (Ig)

Answer 30

expenditures for newly produced capital goods (such as machinery, equipment, tools, and buildings) for additions to inventories

Question 31

net private domestic investment

Answer 31

gross private domestic investment less consumption of fixed capital; the addition to the nations stock of capital during a year

Question 32

government purchases (G)

Answer 32

expenditures by government for goods and services that government consumes in providing public services as well as expenditures for publicly owned captial that has a long lifetime; the expenditures of all governments in the economy for those final goods and services

Question 33

net exports

Answer 33

exports-imports

Question 34

taxes on production and imports

Answer 34

a national income accounting category that includes such taxes as sales, excise, business property taxes, and tariffs that firms treat as costs of producing a product and pass on (in whole or part) to buyers by charging a higher price

Question 35

national income

Answer 35

total income earned by resources suppliers for their contribution to GDP + taxes on production and imports; the same of wages and salaries, rent, interest, profit, proprietors, income, and such taxes

Question 36

consumption of fixed capital

Answer 36

an estimate of the amount of capital worn out or used up (consumed) in producing the gross domestic product (GDP); also called depreciation

Question 37

net domestic product (NDP)

Answer 37

gross domestic product less the part of the year’s output that is needed to replace the capital goods worn out in producing the output; the nations total output available able for consumption or additions to the capital stock

Question 38

person incomes (PI)

Answer 38

the earned and unearned income available to resource suppliers and others before the payment of personal taxes

Question 39

disposable income

Answer 39

personal incomes less personal taxes; income available for personal consumption expenditures and personal savings

Question 40

price index

Answer 40

an index number that shows how the weighted- average of a “market basket” of goods changes over time relative to its price and a specific base year

Question 41

base year

Answer 41

the year with which other years are compared when an index is constructed; for example, the base year for a price index