AP Macroeconomics Chapter 26 Terms

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Section 1

Question Answer
expansionreal GDP, income, and employment rise
labor forcepeople who are willing and able to work
Unemployment RatePercent of labor force unemployed
Discouraged Workersunemployed people who drop out of the labor force
Frictional UnemploymentSearching for jobs or waiting to take jobs soon
Structural UnemploymentPeople lose jobs because of changes in company format
Cyclical Unemploymentunemployment caused by a decline in total spending
Full Employment Rate of Unemployment (when only structural and fractional unemployment exist)Natural Rate of Unemployment (NRU)
GDP gap actual GDP-potential GDP
Okun's Lawfor every 1% the actual unemployment rate exceeds the natural rates a -2% GDP gap occurs

Section 2

Question Answer
Demand Pull Inflationtoo much money chasing too little goods (excess demand bids up prices of limited output)
Cost Push Inflationoutput and employment decline while the general price level is rising
Core InflationUnderlying increases in CPI after volatile food and energy prices are removed
Real Income=(nominal income)/(price index in hundredths)
Cost-ofLiving-Adjustments (COLAs)increases in wages to cope with inflation
real interest rate% increase in purchasing power that the borrower pays the lender
nominal interest rate% increase in $ that the borrower pays the lender
Rate of Inflation=(new CPI-old CPI)/(old CPI)