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AP Macroeconomics > Unit 2 > Flashcards

Unit 2 Flashcards

1
Q

What are the 3 macroeconomic goals?

A
  1. promote economic goods
  2. limit unemployment
  3. keep prices stable (limit inflation)
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2
Q

GDP (definition)

A

dollar (US) value of all final goods and services produced within a country in 1 year.

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3
Q

what does GDP measure?

A

How well a nation is doing financially

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4
Q

Ways to use GDP

A
  1. compare to previous years (is there growth)
  2. compare policy changes (did a new policy work)
  3. Compare to other countries (are we better off)
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5
Q

what is the best tool to measure a nation’s standard of living?

A

GDP

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6
Q

reasons why countries have higher/lower GDPs

A
  1. economic system
  2. Rule of law
  3. capital stock
  4. human capital
  5. natural resources
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7
Q

productivity (definition)

A

output per unit of input

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8
Q

Items not included in GDP

A
  1. Intermediate goods
  2. nonproduction transactions
  3. used goods
  4. nonmarket/illegal goods
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9
Q

the three ways of calculating GDP

A
  1. expedenture approach
  2. income approach
  3. value (added approach)
    all methods should generate the same number
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10
Q

equation for calculating GDP

A

C+I+G+Xn=GDP
(consumer spending, business investment, government spending, net exports)

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11
Q

Consumer spending includes…

A
  1. durable goods
  2. non-durable goods
  3. services
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12
Q

business Investment

A

Businesses buying capital such as machines and tools

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13
Q

Government spending (def)

A

payments made by the govt. for goods/services (NOT transfer payments)

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13
Q

transfer payments

A

when the govt. redistributes income (welfare, SS). Nothing is returned, and subsidies count as transfer payments

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13
Q

Unemployment

A

Workers are actively looking for a job, but are not currently working

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13
Q

What is included in the unemployment rate

A

people in the labor force who want a job but are not working

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14
Q

Frictional unemployment

A

temporary unemployment/being between jobs

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15
Q

structural unemployment

A

changes in labor force that make some skills obsolete (eg. technology)

16
Q

cyclical unemployment

A

caused by a recession

17
Q

Nominal GDP

A

not adjusted for inflation

18
Q

Real GDP

A

adjusted for inflation

19
Q

Stagflation

A

both unemployment and inflation are increasing

20
Q

why is high inflation bad?

A

banks don’t loan out money and people don’t save, which decreases investment and GDP

21
Q

why is deflation bad?

A

people hoard money and assets

22
Q

how is inflation measured?

A

the govt. tracks market baskets

23
Q

what is the inflation rate? (def)

A

Percent change in prices from year to year

24
Q

disinflation

A

prices increasing at slower rates

25
Q

price indices/indexes

A

index numbers assigned each year that demonstrate how prices have changed relative to a specific base year

26
Q

how to calculate CPI (equation)

A

price of market basket/price of market basket in base year *100

27
Q

Problems with CPI

A
  1. many substitutes are not part of the market basket
  2. might not include new products
  3. ignores improvements and declines in quality
28
Q

nominal wage

A

wage measured by dollars rather than purchasing power

29
Q

real wage

A

wage adjusted for inflation

30
Q

menu costs

A

costs money to change listed prices

31
Q

shoe leather costs

A

the cost of transactions increases

32
Q

unit of account costs (def)

A

money doesn’t reliably measure the value of goods/services

33
Q

GDP Deflator (def)

A

measures the prices of all goods domestically

34
Q

What is the ONLY thing CPI measures?

A

services/goods consumers purchase

35
Q

Where does in increase in goods/services bought by firms/ the govt. show up? (what tool)

A

GDP Delflator

36
Q

Quantity Theory (inflation)

A

govt keeps printing money to pay debts; causes hyperinflation

37
Q

Demand-Pull Inflation

A

Demand pulls prices up; there is the same amount of goods, but excessive spending on these goods

38
Q

How do higher production costs increase prices?

A

It leads to a negative supply shock, resulting in producers increasing prices

39
Q

quantitative theory of money equation

A

MV=PY

40
Q

Velocity of money (definition)

A

average times a dollar is spent and re-spent in a year

41
Q
A

AP Macroeconomics (7 decks)

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