AP MACROECONOMICS
UNIT 2 VOCABULARY
Economic Indicators and the Business Cycle
22 essential terms, organized by topic and aligned to the official College Board framework.
GDP & National Output
Term Definition
Gross Domestic The total market value of all final goods and services produced within a country's
Product (GDP) borders in a specific period.
Circular flow model A model showing the flow of money, resources, and goods/services between
households, firms, government, and the foreign sector.
Nominal GDP GDP measured using current-year prices, not adjusted for inflation.
Real GDP GDP adjusted to a base year's prices, removing the effect of inflation — the accurate
measure for comparing output over time.
GDP deflator A price index measuring the change in prices of all goods/services included in GDP;
used to convert nominal GDP to real GDP.
Potential GDP The long-run, sustainable level of output an economy can produce at full
employment, without excess inflation.
Intermediate goods Goods used as inputs to produce a final good; excluded from GDP to avoid double-
counting.
Transfer payment A government payment (e.g., Social Security) made without receiving a good or
service in return; excluded from GDP.
Unemployment
Term Definition
Labor force All people employed or actively seeking work; excludes discouraged workers,
students, retirees, and those not seeking work.
Frictional Short-term unemployment from workers voluntarily transitioning between jobs.
unemployment
Structural Unemployment from a mismatch between workers' skills/location and available jobs.
unemployment
Cyclical Unemployment tied to downturns in the business cycle.
unemployment
UNIT 2 VOCABULARY
Economic Indicators and the Business Cycle
22 essential terms, organized by topic and aligned to the official College Board framework.
GDP & National Output
Term Definition
Gross Domestic The total market value of all final goods and services produced within a country's
Product (GDP) borders in a specific period.
Circular flow model A model showing the flow of money, resources, and goods/services between
households, firms, government, and the foreign sector.
Nominal GDP GDP measured using current-year prices, not adjusted for inflation.
Real GDP GDP adjusted to a base year's prices, removing the effect of inflation — the accurate
measure for comparing output over time.
GDP deflator A price index measuring the change in prices of all goods/services included in GDP;
used to convert nominal GDP to real GDP.
Potential GDP The long-run, sustainable level of output an economy can produce at full
employment, without excess inflation.
Intermediate goods Goods used as inputs to produce a final good; excluded from GDP to avoid double-
counting.
Transfer payment A government payment (e.g., Social Security) made without receiving a good or
service in return; excluded from GDP.
Unemployment
Term Definition
Labor force All people employed or actively seeking work; excludes discouraged workers,
students, retirees, and those not seeking work.
Frictional Short-term unemployment from workers voluntarily transitioning between jobs.
unemployment
Structural Unemployment from a mismatch between workers' skills/location and available jobs.
unemployment
Cyclical Unemployment tied to downturns in the business cycle.
unemployment
