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AP Macroeconomics > Unit 2 > Flashcards

Unit 2 Flashcards

1
Q

Gross Domestic Product (GDP)

A

dollar value of all final goods and services produced within a country in one year.
–> measures eco growth on PPC within country producing borders(land, labor, capital)

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2
Q

dollar value (market price)

A

sale price (found at equilibrium)

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3
Q

GDP calculation

A

sale price - production price = profit

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4
Q

expenditure model

A

c + i + g + xn = Y(GDP)

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5
Q

intermediate goods

A

goods still being used in the production of another good
–> not counted in GDP

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6
Q

final good

A

goods available for purchase for consumers
–> counted in GDP

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7
Q

consumer spending

A

what consumer buy

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8
Q

investment (business) spending

A

all new construction
change in capital
change in inventory

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9
Q

government spending

A

must make an exchange of money for a good or service

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10
Q

net exports

A

exports - imports

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11
Q

what is not included in GDP

A
  • DIY
  • financial assets transactions (stocks + bonds)
  • transfer payments (subsidies)
  • used goods
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12
Q

% change in GDP

A

(year 2 - year 1)/year 1 *100

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13
Q

GDP per capita (per person)

A

identifies average on how many products each person makes

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14
Q

Why GDP is higher in some countries

A
  1. human capital (edu)
  2. capital stock (tech)
  3. rule of law (political stability)
  4. natural resources reservoir
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15
Q

ways to calculate GDP

A
  1. expenditure approach : add up all spending on final G + S produced in given year
  2. income approach : add up all income earned from selling final G + S produced in given year
  3. value add approach : add up dollar valued added at each stage of production process
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16
Q

3 component consumer spending

A
  1. durable goods (washing machine, long term tech)
  2. non durable goods (food, clothes)
  3. services (dental work, tutoring, repairs)
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17
Q

to be employed :

A

16+
civilian (not military)
non institutionalized (jail)
actively seeking employment

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18
Q

to be part of labor force :

A

unemployed / employed
labor force = unemployed + employed

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19
Q

employment figure
employment rate

A

unemployed/labor force
unemployed/employed

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20
Q

underemployed

A

people go from full time to part time not by choice; pay cut. unemployed so take what you get

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21
Q

discouraged workers

A

unemployed originally but then stop looking for work

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22
Q

frictional unemployment

A

short term (move/ graduated and looking for job; no cause)

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23
Q

structural

A

long term unemployment
-> no skills to transfer to another job

24
Q

Cyclical

A

Unemployment when nation is going through economic hardships

25
Q

natural rate of unemployment

A

healthy eco system
-> US : 4 < x < 6% unemployment rate

26
Q

inflation

A

rising general level of P + reduces purchasing power of money
–> decreases investment and GDP

27
Q

deflation

A

decreasing in general prices; a negative inflation rate

28
Q

disinflation

A

inflation that occurs at a slower rate

29
Q

inflation rate

A

% change in P from year to year

30
Q

price indices

A

index numbers assigned to each year that show how P has changed relative to a specific base year.

31
Q

consumer price index

A

(price of market basket) / (price of market basket in base year)

32
Q

substitution bias

A

as P increase or fixed market basket, consumers buy less if these products and more substitutes that may not be part of market basket. (CPI may be higher than what consumers are really paying).

33
Q

new products

A

CPI market basket may not include the newest consumer products. (CPI measures prices not the increase in choices

34
Q

products Q

A

CPI ignores both improvements and decline in products Q

35
Q

problems with CPI

A
  • substitution bias
  • new products
  • product Q
36
Q

lenders

A

people who lend money at fixed interest rates
(hurt by inflation)

37
Q

borrowers

A

people who borrow money

38
Q

people who are hurt by inflation

A
  • lenders
  • people with fixed incomes
  • savers
39
Q

people who are helped by inflation

A
  • borrowers
  • bus where P of products increases faster than P of resources
40
Q

people who are helped by inflation

A
  • borrowers
  • bus where P of products increases faster than P of resources
41
Q

nominal wage

A

wage measured by money rather than purchasing power

42
Q

real wage

A

wage adjusted for inflation

43
Q

menu costs

A

costs money to change listed prices

44
Q

shoe leather costs

A

costs of transaction increasing
–> people reduce real money holding, so they must spend time and effort making additional trips to bank

45
Q

unit of account cosrs

A

money doesnt reliably measure the value of G + S
–> leads to less efficient use of resources bc of uncertainty caused by changes in currency values

46
Q

real

A

adjusts for GDP

47
Q

inflation

A

rising general level of prices

48
Q

norminal GDP

A

GDP measured in current prices; doesnt account for inflation from year to year

49
Q

real GDP

A

GDP measured in cibstant/ unchanging $; adjusts for inflation

50
Q

GDP deflator

A

measures P of all goods produced; includes only G + S produced domestically. Imported goods not part of GDP thus wont show in GDP deflator

51
Q

GDP deflator equation

A

nominal GDP / Real GDP * 100

52
Q

recession

A

6 month period of decline in real GDP

53
Q

peak

A

highest time of GDP

54
Q

trough

A

lowest value of GDP

55
Q

contraction

A

recession
- increase in unemployment
- decrease in GDP

AP Macroeconomics (2 decks)

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