AP Macroeconomics Monster Vocab – Flashcards
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Economics
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The study of how people coordinate their wants and desires to do the best they can under scarcity.
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Classical Economics
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It holds that full employment is the norm in a market economy and therefore "let it be" policy by government is best. (gov doesn't need to get involved because it fixes itself) -aggregate supply curve is vertical and is the sole determinant of the real output
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Keynesian Economics
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Active government policy is required to stabilize the economy and to prevent valuable resources from standing idle. -aggregate supply curve is horizontal
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Factors of Production
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Land Labor Capital Entrepreneurship
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Trade Off
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The sacrifice of some or all of one economic goal or service to achieve some other goal, good, or service. Example) Beach vs. school I went to school trade off: school
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Opportunity Cost
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The amount of other products that must be forgone or sacrificed to produce a unit of a product. Example) Beach vs. school I went to school opportunity cost: beach
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PPC
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Shows two different combinations of goods and services that society can produce with ceratus parabus(all other things equal). -full employment -fixed resources -fixed technology
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Specialization
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The use of resources of an individual, a firm, a region, or a nation to concentrate production on one or a small number of goods and services.
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Open Economy
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Economy that trades with other nations. (open trade)
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Closed Economy
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Economy that doesn't trade with other nations.
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Absolute Advantage
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The ability for an individual or group to carry out a particular economic activity using less resources (input).
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Comparative Advantage
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The ability for an individual or group to carry out a particular economic activity at a lower opportunity cost than someone else.
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Circular Flow Model
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An illustration showing the flow of resources from households to firms and of products from firms to households.
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Economic Growth
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An increase of real output. Also an outward shift in the PPC that results from an increase in resource, supplies, or technology.
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Aggregate Demand
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A schedule or curve that shows the total quantity demanded at different price levels.
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Short Run Aggregate Supply Curve
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Image showing the relation between real production and the price level in a given period of time.
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Long Run Aggregate Supply Curve
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Image showing that the same level of real production is produced at any price level, the curve is a vertical line.
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Automatic Stabilizers
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Features of the tax and transfers systems that tend by their design to offset fluctuations in economic activity without direct intervention by policy makers. Example) welfare, unemployment insurance
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Recession
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A period of declining real GDP, accompanied by lower real income, and higher unemployment.
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Recessionary Gap
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The real GDP is lower than the potential GDP at full employment. -economy operates below full employment
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Contractionary Fiscal Policy
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A decrease in aggregate spending and aggregate demand through a decrease in government spending or increase in taxes.
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Expansionary Fiscal Policy
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Increasing aggregate spending and aggregate demand through an increase in government spending or decrease in taxes.
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Contractionary Monetary Policy
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Seeks to reduce economic activity by raising interest rates, and decreasing government spending.
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Expansionary Monetary Policy
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Seeks to expand money supply, and increase economic activity by cutting taxes or decreasing interest rates, and by increasing government spending.
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RGDP
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GDP adjusted for inflation.
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Budget Deficit vs. Budget Surplus
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Deficit: When an individual, firm, or business budgets more than revenue available to pay Surplus: When an individual, firm, or business has more income than expenses
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Business Cycle
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All economies go through periods of growth and contraction.
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Cyclical Unemployment
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Unemployment that results when the overall demand for good or services in an economy cannot support full employment.
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Frictional Unemployment
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Unemployment related to the transition of jobs.
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Structural Unemployment
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Unemployment in which exists because workers are not qualified for a specific job.
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Labor Force Participation Rate
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The proportion of people eligible for the work force that are actually participating in it and the total population.
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Natural Rate of Unemployment
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The rate of unemployment consistent with the natural level of employment. (The lowest rate of unemployment that an economy can sustain over the long run)
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Unemployment Rate
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The proportion of people unemployed and the labor force.
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Marginal Propensity to Consume
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The portion of extra income that consumers spend. ( consumption/ income)
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Marginal Propensity to Save
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The portion of extra income that consumers save. ( savings/ income)
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Interest Rate Effect
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The impact of a rise in the cost of borrowing production costs due to price inflation within an economy.
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Gross Domestic Product (GDP)
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Total market value of FINAL goods and services.
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Potential Output
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What an economy can produce if it's using all its resources EFFICIENTLY.
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GDP Price Deflator
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Measures price changes in current year compared to those in a base year. (measure deflation and inflation) formula: (Nominal GDP/Real GDP) x 100
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Real Income Effect
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The change in an individual's or economy's income and how that change will impact the quantity demanded of a good or service.
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Spending Multiplier
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Shows us how much economic output increases with an increase in spending. (1/ Marginal Propensity to save)
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Tax Multiplier
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Measures the change in aggregate production caused by changes in government taxes. -The negative marginal propensity to consume x (1-slope of the aggregate expenditures line)
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Net Exports
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Exports - imports
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Laffer Curve
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Shows the relationship between tax rates and tax revenue collected by government.
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Consumer Price Index
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A measure of changes in the purchasing power of a currency and the rate of inflation. formula: CPI= (current year price/base year price) x 100
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Inflation
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The rate at which the general level of prices for goods and services is rising.
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Demand Pull Inflation
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Increase in prices due to excessive spending. (Relates directly to consumers)
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Cost Push Inflation
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Increase in prices due to the rises in costs of input resources. (Relates directly to businesses/firms)
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Inflationary Gap
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When actual GDP exceeds potential full employment GDP.
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Phillips Curve
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Shows the inverse relationship between the level of unemployment and the rate of inflation.
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Crowding Out Effect
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A rise in interest rates leads to a reduction in private investment spending.
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Fiat Money
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Inconvertible paper money made legal tender by a government decree.
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Function of Money
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1. Unit of account 2. Store value 3. Medium of exchange 4. A standard of deferred payment
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Deposit Expansion Multiplier/ Money Multiplier
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1/ reserve ratio
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Open Market Operations
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The buying and selling of government securities (stocks and bonds) in the open market in order to expand or contract the amount of money in a banking system.
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Reserve Requirement Ratio
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Minimum fraction of consumer's deposits that each bank must hold as reserves.
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Discount Rate (federal funds rate)
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Interest rate set my The Fed to lend to other banks.
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Loanable Funds Market
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Money available for lending and borrowing.
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Exchange Rate
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The value of one currency for the purpose of conversion to another.
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Nominal vs. Real GDP
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Nominal: GDP not adjusted for inflation Real: GDP adjusted for inflation
