Unit 2 AP MARCO

The field of macroeconomics was born during the Great Depression.

1. Measure the health of the whole economy.

2. Guide government policies to fix problems.

1. Promote Economic Growth

2. Limit Unemployment

3. Keep Prices Stable (Limit Inflation)

GDP is the dollar value of all final goods and services produced within a country’s borders in one year.

Measures annual economic performance.

GDP does not include the value of intermediate goods.  Intermediate goods are goods used in the production of final goods and services.

GDP is measured in dollars.

No Multiple Counting, Only Final Goods

Price of finished car, not the radio, tire, etc.

Financial Transactions (nothing produced)

Used Goods

Old cars, used clothes

Stocks, bonds, Real estate

Illegal drugs, unpaid work, babysitting (literally anything that you are paid in cash that the IRS does not tax)

-Expenditures Approach

-Income Approach

(Both ways generate the same amount since every dollar spent is a dollar of income.)

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

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

When businesses put money back into their own business.

Bombs or tanks, NOT social security

Exports (X) – Imports (M)

Bureau of Economic Analysis, a division of the U.S. government’s Department of Commerce.

tracks the spending of consumers, sales of producers, business investment spending, government purchases, and a variety of other flows of money among different sectors of the economy.

Expanded Circular-Flow Diagram

a person or group of people who share income.

is an organization that produces goods and services for sale.

are where goods and services are bought and sold.

are where resources, especially capital and labor, are bought and sold.

is household spending on goods and services.

. So, for example, the total flow of money out of households—the sum of taxes paid, consumer spending, and private savings—must equal the total flow of money into households—the sum of wages, profit, interest, rent, and government transfers.

-First, some of the goods and services produced in the United States are sold to residents of other countries.

-Second, some of the goods and services purchased by residents of the United States are produced abroad.

-Third, foreigners can participate in U.S. financial markets. Conversely, foreign borrowing—borrowing by foreigners from U.S. lenders and purchases by Americans of stock in foreign companies—leads to a flow of funds out of the United States to the rest of the world.

is GDP expressed in constant, or unchanging, dollars.

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

A rising general level of prices.

is real GDP divided by the total population. It identifies on average how many products each person makes.

Real GDP per capita

1. Technology

2. Economic System

3. Capital

4. Human Capital (Knowledge)

5. Natural Resources

• Above 16 years old

• Able and willing to work

• Not institutionalized (jails, hospitals)

• Not in military, in school full time, or retired

Cause they aren’t actively looking for a job.

“Temporarily unemployed” or being between jobs.

Individuals are qualified workers with transferable skills but they aren’t working.

Changes in the structure of the labor force make some skills obsolete.

Workers DO NOT have transferable skills and these jobs will never come back.

This is a specific type of frictional unemployment which is due to time of year and the nature of the job.

Type of structural unemployment where automation and machinery replace workers causing unemployment

Unemployment that results from economic downturns (recessions).

As demand for goods and services falls, demand for labor falls and workers are fired.

Frictional unemployment

Structural unemployment

Frictional unemployment

Structural unemployment

The number of jobs seekers equals the number of jobs vacancies.

4-6% Unemployment = Full Employment

It can misdiagnose the actual unemployment rate because of the following:

-Disgruntled job seekers

-Part-Time Workers

-Race/Age Inequalities

-Illegal Labor

is made up of about 300 commonly purchased goods

% change in prices in 1 year

They also compare changes in prices to a given base year (usually 1982)