unit 2

• Aggregate Expenditure


  Total spending on final goods/services in economy.
• Macroeconomics


  Study of the economy as a whole.
• AE Formula


  AE = C + I + G + (X - M).
• Aggregate Demand


  Total spending on final goods/services over time.
• Stable Economic Growth


  Target growth rate of 3-4% annually.
• Full Employment


  Unemployment rate between 4-4.5%.

  a natural rate
• Price Stability


  Inflation target of 2-3%.
• Equal Distribution of Income


  Fair allocation of income across society.
• Aggregate Supply


  Total value of final goods/services produced.
• Consumption


  Most stable component of aggregate expenditure.
• Durable Goods


  Long-lasting items like furniture and cars.
• Non-Durable Goods


  Regular purchases like food and clothing.
• Factors Affecting Consumption


  Income, savings, interest rates, and government policies.
• Investment


  Most variable component of aggregate expenditure.
• Leakages


  Money exiting the economic flow.
• Injections


  Money entering the economic flow.
• Net Exports


  Exports minus imports in the economy.
• Circular Flow of Income


  Model showing income movement between sectors.
• Marginal Propensity to Consume (MPC)


  Willingness to consume additional income.
• Marginal Propensity to Save (MPS)


  Willingness to save additional income.
• Economic Growth


  Increase in economy's capacity to produce.
• Benefits of Growth


  Higher living standards and employment opportunities.
• Demand Factors of Growth


  Consumption, investment, government spending, net exports.
• Supply Factors of Growth


  Capital, enterprise, land, and labor input.
• Production Possibility Frontier


  Graph showing maximum production capabilities.
• Gross Domestic Product (GDP)


  Total market value of final goods/services produced.
• GDP Formula


  GDP % change = (GDP year 2 - GDP year 1) / GDP year 1 x 100.
• Nominal GDP


  Value of output at current day prices.
• Real GDP


  GDP adjusted for inflation, using constant prices.
• Non-market items


  Goods/services without dollar value excluded from GDP.
• Product quality


  GDP cannot measure improvements in product quality.
• Productivity


  Output efficiency not measured by monetary exchange.
• Standard of living


  Quality of life factors not captured by GDP.
• Qualitative growth


  Improvement in efficiency without increasing quantity.
• Quantitative growth


  Increase in output or production levels.
• Business Cycle


  Fluctuations in economic activity over time.
• Boom


  High economic activity, low unemployment, high inflation.
• Contraction


  Economic decline with rising unemployment and falling GDP.
• Trough


  Lowest point in the business cycle.
• Leading indicators


  Predict trends before they become obvious.