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AP Macroeconomics > Unit 2 > Flashcards

Unit 2 Flashcards

1
Q

What are the Macroeconomic goals for each country?

A

Promote Economic Growth- Limit Unemployment- Keep Prices Stable

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2
Q

Define GDP

A

Dollar value of all final goods and services produced within a country in one year.

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3
Q

What are the three ways of measuring GDP?

A

Expenditure-Income-Value Added Approach EIV

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4
Q

Define Final Goods

A

GDP only counts new goods and services.

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5
Q

Define Within The Country

A

GDP measures production within the country’s borders.

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6
Q

Define the Expenditure Approach

A

Add up all the spending on final goods and services produced in a given year.

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7
Q

What is the equation for the Expenditure Approach?

A

C+I+G+Xn

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8
Q

What does C represent in the Expenditure Approach Equation?

A

Consumer Spending

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9
Q

Define Consumer Spending

A

(70% of GDP) Purchases of final goods and services by individuals.

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10
Q

What does I represent in the Expenditure Approach Equation?

A

Business Investment

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11
Q

Define Business Investment

A

(16% of GDP) Businesses spending on tools and equipment.

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12
Q

What does G represent in the Expenditure Approach Equation?

A

Government Spending

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13
Q

Define Government Spending

A

(17% of GDP)

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14
Q

What does Xn represent in the Expenditure Approach Equation?

A

Exports-Imports

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15
Q

Define the Income Approach

A

Add up all the income earned from selling all final goods and services produced in a year.

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16
Q

What are the excluded items from GDP?

A

Illegal Activities
Barter-exchange (goods or services) for other goods or services without using money.
Household Services- Wife
Used Goods (Double Counting)
Intermediate Goods (Double Counting)-Ex. Tires on a new Truck
Transfer Payments-Public/Private Transfer Payment-Ex. Financial Aid
Purely Financial Transactions- Stocks, Bonds, and Savings.

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17
Q

When Ig>D, that is when companies are _____; when Ig

A

Content-Recession

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18
Q

C+Ig is known as the _____ sector.

A

Private

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19
Q

What is the equation for the Income Approach?

A

(National Income/Income Approach) NI= W+I+R+P+TIP

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20
Q

W=

A

W= Wages (Wages, Salaries, and Benefits)

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21
Q

I=

A

I= Interest Income (Assets that are earning us income)

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22
Q

R=

A

R= Rent (Income private people will earn as they allow others to use their physical capital)

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23
Q

P=

A

P= Profits (Corporate, Partnership, and Sole Proprietor Profits)

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24
Q

TIP=

A

TIP= Taxes on Imports and Production (Tariffs and Excise Taxes)

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25
Q

Define the Value-Added Approach

A

Add up the dollar value added at each stage of the production process.

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26
Q

What are the conditions of being counted in the labor force?

A

At least 16 years old- Able and Willing to Work- Not institutionalized-Not in School, Military, or retired. 16AIS

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27
Q

Define Unemployment

A

Workers that are actively looking for a job but aren’t working.

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28
Q

Define Labor Force Participation Rate

A

The percent of people employed and unemployed divided by the number of the working-age population.

29
Q

Define Discouraged Workers

A

Some people are no longer looking for a job because they have given up.

30
Q

Define Underemployed Workers

A

A part-time worker that wants more hours but can’t get them is still considered employed.

31
Q

What are the types of unemployment?

A

Frictional-Structural-Cyclical FSC

32
Q

Define Frictional Unemployment

A

Temporary unemployment or being in between jobs. Individuals are qualified workers w/ transferable skills.

33
Q

Define Structural Unemployment

A

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 a new skill to get a job.

34
Q

Define Cyclical Unemployment

A

Unemployment caused by a recession. As demand for goods and services falls, demand for labor falls and workers are laid off.

35
Q

Define the Natural Rate of Unemployment

A

Frictional plus structural unemployment. The amount of unemployment that exists when the economy is healthy and growing.

36
Q

Define Full Employment Output

A

The real GDP created when there is no cyclical unemployment.

37
Q

Define CPI

A

The most commonly used measurement of inflation.

Mkt Basket of Particular Year/ Mkt Basket of Base Year x100

38
Q

Define Inflation

A

Increase in general prices over time.

39
Q

Define Deflation

A

Decrease in general prices or a negative inflation rate.

40
Q

Define Disinflation

A

Prices increasing at slower rates.

41
Q

Define GDP Deflator

A

Measures the prices of all goods produced.

Nominal GDP/Real GDP x 100

42
Q

What are some problems with the CPI?

A

Substitution Bias-New Products-Product Quality SNQ

New Products- The CPI market basket may not include the newest consumer products.

Product Quality- The CPI ignores both improvements and decline in product quality.

43
Q

Define Substitution Bias

A

As prices increase for the fixed market basket, consumers buy less of these products and more substitutes that may not be part of the market basket.

44
Q

What group of people are helped by inflation?

A

Borrowers (People who borrow money)- A business where the price of the product increases faster than the price of resources.

45
Q

What group of people are hurt by inflation?

A

Lenders (people who lend money at fixed interest rates)- People with fixed incomes-Savers.

46
Q

Define Nominal Wage

A

Wage measured by dollars rather than purchasing power.

47
Q

Define Real Wage

A

Wage adjusted for inflation.

48
Q

Define Nominal GDP

A

GDP measured in current prices. It does not account for inflation from year to year.

49
Q

Define Real GDP

A

GDP expressed in constant, or unchanging, dollars. Real GDP adjusts for inflation.

50
Q

What are the phases of the business cycle?

A

Peak-Recession-Trough-Expansion

51
Q

Define the Rule of 70

A

70% GDP growth rate

52
Q

What is the Labor Force consisted of?

A

Employed+Unemployed

53
Q

What is the formula of Unemployment Rate?

A

(Unemployed/Labor Force)x100

54
Q

Define Okun’s Law

A

Every 1% of Unemployment is greater than the natural rate of unemployment and you will have a 2% GDP gap.

55
Q

There are about _____ items in the CPI.

A

400

56
Q

What are the types of Inflation?

A

Demand Pull-Cost Push- Monetary Equation of Exchange DCM

57
Q

Define Demand Pull Inflation

A

Too much money chasing too few goods.

58
Q

Define Cost Push Inflation

A

Blamed on the increasing price of raw material, capital, and labor.

59
Q

Define the Monetary Equation of Exchange

A

MV=PQ M=Money Supply V= Velocity of Money

60
Q

What is the equation for Nominal GDP?

A

Nominal GDP= Real GDP+ Expected Inflation

61
Q

What is the equation for Nominal Interest?

A

Nominal I= Real I+ Expected Inflation

62
Q

What is the equation for GDP?

A

GDP=NI+NFFI+DEPR-SD

63
Q

What is the equation for NDP?

A

NDP=GDP-DPR

64
Q

What is the equation for NI?

A

NI=NDP-NFFI+SD

65
Q

What is the equation for PI

A

PI=NI-TIP-SSC-CIT-UCP+TP

66
Q

What is the equation for DI?

A

DI=PI-PIT

67
Q

What is the equation for DI?

A

DI=C+S

68
Q

What is the equation for UCP?

A

UCP=Income-Expenses-CIT-Dividends

AP Macroeconomics (5 decks)

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