How economists measure an economy that never stops moving. GDP and its components, the limits of GDP as a measure of well-being, unemployment, price indices and inflation, and the phases of the business cycle.
Seven topics from the College Board CED, in order.
Topic 2.1
The Circular Flow Model
How households, firms, government, and the rest of the world exchange resources, goods, and money.
Topic 2.2
GDP and Its Components
Gross domestic product measured by spending (C + I + G + Nx) and the expenditures approach.
Topic 2.3
Limitations of GDP
What GDP leaves out — non-market activity, the underground economy, distribution, and quality of life.
Topic 2.4
Unemployment
The labor force, the unemployment rate, and the frictional, structural, cyclical, and natural rate categories.
Topic 2.5
Price Indices & Inflation
The CPI and GDP deflator, how the inflation rate is calculated, and demand-pull vs. cost-push inflation.
Topic 2.6
Costs of Inflation & Real vs. Nominal Values
Winners and losers from unanticipated inflation, and converting nominal GDP and nominal interest rates to real values.
Topic 2.7
Business Cycles
Expansion, peak, recession (contraction), and trough — and how real GDP, unemployment, and inflation move through each phase.
About Unit 2
Unit 2 gives you the measurement toolkit for the rest of the course. Before you can analyze policy or model the macroeconomy, you need to know how economists track its size (GDP), its labor market (unemployment), and its price level (inflation) — and, just as importantly, where those measures fall short.
This unit is roughly 12–17% of the AP Macro exam and takes about 12–15 class periods. The numbers you calculate here — real GDP, the unemployment rate, the inflation rate — show up constantly in later units, especially Unit 3's AD/AS model and Unit 5's long-run policy analysis.
The College Board ties Unit 2 to three Big Ideas that recur across the whole course:
Big Idea 1
Measurement — you can't manage what you can't measure
Big Idea 2
Real vs. nominal — prices distort our view of value
Big Idea 3
Cycles — economies fluctuate, they don't grow in a straight line