Core college macroeconomics concepts and formulas beyond the AP level.
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- What does GDP measure?
- The total market value of all final goods and services produced within a country in a specific period.
- How does real GDP differ from nominal GDP?
- Real GDP adjusts for price changes using a base year, while nominal GDP uses current prices.
- What is the GDP deflator?
- A price index that measures the ratio of nominal GDP to real GDP, showing the overall price level change.
- Name the four components of GDP.
- Consumption (C), Investment (I), Government spending (G), and Net exports (X-M).
- Distinguish GNP from GDP.
- GDP measures output within a country's borders; GNP measures output produced by a country's nationals regardless of location.
- What is aggregate demand (AD)?
- The total quantity of goods and services demanded across the entire economy at different price levels.
- Why does the aggregate demand curve slope downward?
- Higher price levels reduce purchasing power, decrease net exports, and increase interest rates, all reducing quantity demanded.
- What is aggregate supply (AS)?
- The total quantity of goods and services that firms are willing to produce and supply at different price levels.
- Define the Phillips curve.
- An inverse relationship between the rate of inflation and the rate of unemployment, showing a trade-off between the two.
- What is the natural rate of unemployment (NRU)?
- The unemployment rate at which inflation is stable, consisting of frictional and structural unemployment.
- Explain the multiplier effect.
- An initial increase in spending leads to a greater final increase in output, because spending by one group becomes income for another.
- What is crowding out?
- When increased government spending drives up interest rates, reducing private investment spending.
- How does monetary policy transmission work?
- Central bank changes the money supply, which affects interest rates, which influences investment and consumption, changing output and prices.
- What is the velocity of money?
- The average number of times each unit of money is spent in a given period, calculated as the ratio of nominal GDP to money supply.
- What is the loanable funds market?
- A market where savers supply funds and borrowers demand funds, with the interest rate serving as the price.