AP Macroeconomics Vocab and Concepts – Flashcards
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fallacy
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a false assumption/statement/theorem
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normal good
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if incomes increase, the demand for this type of good will also increase
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inferior good
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if incomes decrease, the demand for this type of good will increase
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price ceiling
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sets the maximum legal price a seller may charge for a product/service
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price floor
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sets the minimum legal price a seller may charge for a product/service
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market day supply
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a special type of supply curve/situation where quantity is fixed (ex: concert tickets)
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durable goods
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goods that last more than three years; the supply and demand of these goods is more affected by a recession; ex: cars, refrigerators
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non-durable goods
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goods that last less than three years; ex: food, clothes, toiletries
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bond
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an IOU; households lend money to a corporation and the corporation promises to pay it back later at an interest rate
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payroll taxes
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taxes on wages that go towards such gov. programs as Social Security and Medicare
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excise taxes
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taxes on purchases; main revenue of state govs; aka sales taxes
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GNP (gross national product)
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GDP+re-patriated money ( $ from businesses owned by US companies overseas)
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intermediate goods
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goods in the process of being manufactured; not in GDP
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consumption of fixed capital
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how much a good wears down over time; aka depreciation
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NDP (net domestic product)
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GDP - depreciation = ?
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disposable income
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personal income - personal taxes = ?
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financial investment
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type of investment that includes the purchase of assets like stocks, bonds, and real estate in the hope of reaping a financial gain
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economic investment
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type of investment that includes the creation and expansion of business enterprises; only includes money spent purchasing newly created capital goods such as machinery, tools, factories, & warehouses
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economic shock
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situation in which unexpected consequences/changes occur in supply and/or demand
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personal consumption
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disposable income - personal savings = ?
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nominal GDP
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current price X current quantity = this type of GDP
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real GDP
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GDP adjusted for inflation; base year price X current quantity
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price index
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NGDP / RGDP X 100
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rule of 70
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70 / percentage inflation= number of years it will take for price to double
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full employment
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when all available resources are used (doesn't mean that 100 percent of people are employed)
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work force
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anyone 16+ years of age who is non-institutionalized and working or actively seeking work
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unanticipated inflation
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this type of inflation hurts savers and creditors but helps debtors
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frictional unemployment
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type of unemployment where skilled workers are between jobs and unemployment is basically short-lived
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structural unemployment
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change in taste for product or change in technology causes this type of unemployment; workers must be retrained
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NRU (natural rate of unemployment)
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frictional unemployment + structural unemployment = ?
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cyclical unemployment
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type of unemployment that is unhealthy, slows down circular flow, only occurs during a recession, and is the amount that the actual unemployment rate exceeds the NRU
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Okun's law
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for every 1% of cyclical unemployment, there is a 2% decline in potential GDP
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spending multiplier
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1 / (1-MPC) or 1 / MPS
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tax multiplier
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-MPC / (1-MPC)
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cost-push inflation
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aka supply shock, stagflation; when SRAS shifts left
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expansionary fiscal policy
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type of fiscal policy used in recession; gov spending increases and taxes are lowered
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contractionary fiscal policy
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type of fiscal policy used to deal with inflation; gov spending decreases and taxes raised
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ratchet effect
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effecct that states that if inflation occurs (prices go up), they tend to stay at that high level; prices are inflexible downwards
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per-unit production cost
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total input cost / total output cost = ?
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crowding out
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high interest rates reduce investment (I) in GDP equation and thus often cancel the effect of expansionary fiscal policy; gov borrows from firms and thus leaves less money for the firm
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token money
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the value of currency is unrelated to the value of the materials needed (ink, paper, etc) to make currency; face value > intrinsic value
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monetary policy
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deliberate manipulation of money supply in order to afffect interest rate and then investment and AD
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open market operations
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the buying and selling of gov. securities/bonds
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money multiplier
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1 / legal reserve requirement = ?
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asset
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anything of monetary value owned by an individual or firm
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required reserves
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demand deposit X reserve requirement (%) = ?
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excess reserves (loanable funds)
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actual reserves - required reserves = ?
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Federal fund rate
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bank to bank lending of money
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discount rate
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the lending of money from the FED to commercial banks
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social security
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biggest source of federal spending
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real balance effect
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effect that states that as the demand for money goes up, so do interest rates
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recession
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occurs when aggregate demand shifts left and as a result, price level and RGDP decrease
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demand-pull inflation
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occurs when aggregate demand shifts right and price level and RGDP increase as a result
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prosperity
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occurs when aggregate supply shifts right and price level decreases and RGDP increases
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appreciation
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when this occurs to the dollar, imports are cheaper, exports are more expensive, interest rates fall, AD falls, and inflation is lowered
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subsidy
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a payment from the government to either produce or not produce a good
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decreases
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as interest rates increase, aggregate demand ______________
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liquidity
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how easily something can be converted into cash
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M1
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includes currency, demand deposits/checks, debit cards, and traveler's checks
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M2
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includes M1 + savings accounts, low denomination time deposits, MMDA, and MMMF for individuals
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increases
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in espansionary monetary policy, as MS increases and interest rates decrease, investment demand ____________
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inversely
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the amount a dollar can buy varies _____________ with the price level
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absolute advantage
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the ability of a country to produce a good with fewer resources than other countries
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comparative advantage
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the ability of a country to produce a good with less opportunity cost than other countries
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quota
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a limit on imports
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philips curve
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a curve showing possible combinations of the inflation rate and the unemployment rate
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decrease
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as the dollar appreciates, interest rates increase, and exports _________
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laffer curve
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used in 'reagonomics'/monetarist policy, this curve shows the relationship between tax rate and tax revenue
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percent yield
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interest that bond pays / price of bond = ____________ ?
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ceteris paribus
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latin term that means "other things being equal"
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marginal propensity to consume (MPC)
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change in consumption / change in income = ?
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leakage
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a withdrawal of spending from an economy's circular flow of income and expenditures; ex: saving, imports, taxes
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injection
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an addition of spending into the income-expenditures stream; ex: investment, exports, gov. purchases
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opportunity cost
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to obtain one thing ,society forgoes the opportunit yof getting the next best thing; a sacrifice
